natural gas prices: past trends and future projections · 2016-12-08 · – pipelines – imports...

ENERGY CENTERState Utility Forecasting Group (SUFG)


Natural Gas Prices: Past Trends and Future Projections

Presented by:Douglas J. Gotham

Di tDirectorState Utility Forecasting Group

Presented to:Vectren Energy Delivery Trade Ally Meeting

September 22, 2009



Natural Gas Prices• Natural gas prices tend to be very

volatilevolatile• Relatively constant prices with

occasional extremesoccasional extremes• Very difficult to predict future prices

– we do not project natural gas prices, but they are a factor in electricity use and prices so we do look at the projections ofprices, so we do look at the projections of others



Factors Affecting Prices• Demand

– economic factors• Supply

– drilling– weather– electricity sector

g– pipelines– imports

• Storage • Prices of other fuels– oil– coal



I di N t l GIndiana Natural Gas Consumption by Sector (Bcf)Co su p o by Sec o ( c )

500

600

400

Total

200

300 Residential

Commercial

Industrial

Electricity

100

01997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007



2008 U S Natural Gas Imports2008 U.S. Natural Gas Imports & Exports (Bcf)p ( )



I di N t l G S l iIndiana Natural Gas Supply in 2007 (Bcf)00 ( c )

• Production 3.6• Imported 2 432• Imported 2,432• Exported 1,874

77 % of the gas that entered the state (from the south and west) passed through and left the state (to the north and east)



N t l G N tNatural Gas Near-term Futures Prices ($/mmBtu)u u es ces ($/ u)

141618

81012

246

0

ep 0

9, 1

994

ep 0

9, 1

995

ep 0

9, 1

996

ep 0

9, 1

997

ep 0

9, 1

998

ep 0

9, 1

999

ep 0

9, 2

000

ep 0

9, 2

001

ep 0

9, 2

002

ep 0

9, 2

003

ep 0

9, 2

004

ep 0

9, 2

005

ep 0

9, 2

006

ep 0

9, 2

007

ep 0

9, 2

008

ep 0

9, 2

009

Se Se Se Se Se Se Se Se Se Se Se Se Se Se Se Se

Data source: Energy Information Administration (EIA)



What’s changed• About 10 years ago, the amount of gas

produced per new well started droppingproduced per new well started dropping– the best gas locations were becoming

played outplayed out• Also, large amounts of new gas-fired

electricity generators were builtelectricity generators were built• As prices increased, new wells were

drilled but total production stayed flatdrilled, but total production stayed flat



Since Then• Price spikes have become more

pronouncedpronounced• The “normal” price of gas has increased

from around $2 to the $4 6 rangefrom around $2 to the $4-6 range• Prolonged high prices in the fall of 2005

d t l di ti ftwere due to supply disruptions after Hurricanes Katrina & Rita



More Recently• Production of gas from “unconventional”

sources, such as shale gas• High prices in 2008 were largely a result

of infrastructure issues– Pipeline system had to catch up to new

wells• New pipelines came into place around

the same time as the demand droppedthe same time as the demand dropped due to the economy



C t N t l GCurrent Natural Gas ConsumptionCo su p o

• EIA estimates gas consumption will fall by 2 4 % in 2009by 2.4 % in 2009– 12 % in industrial sector

• The price decrease makes gas more• The price decrease makes gas more attractive for electricity generation

b l t i it t t d t– gas use by electricity sector expected to increase by 4.3 % despite 3 % drop in electricity saleselectricity sales



C t N t l GCurrent Natural Gas Productionoduc o

• Low price has curtailed drilling activities• Total working rigs in U S down by 45 %• Total working rigs in U.S. down by 45 %

since start of the yearEIA t 2009 U S d ti t b• EIA expects 2009 U.S. production to be 0.9 % higher than 2008 and 2010

d ti t b 3 5 % lproduction to be 3.5 % lower.



Current Natural Gas Storage• As of the end of August 28, working gas

storage was 3 323 Bcfstorage was 3,323 Bcf– 501 Bcf above the 5-year average

489 Bcf above the year before– 489 Bcf above the year before• EIA projects it to reach 3,840 Bcf by end

of October beating the previous recordof October, beating the previous record– 3,565 Bcf in 2007



EIA’ Sh t t O tl kEIA’s Short-term Outlook (September 2009)(Sep e be 009)

• Prices will remain low for the rest of 2009 averaging $3 65/thousand cubic2009, averaging $3.65/thousand cubic feet for entire year– resilient production– resilient production– high storage levels

low demand– low demand– possible increase in imports

P i ill b d h t i 2010• Prices will rebound somewhat in 2010, averaging $4.78/thousand cubic feet



EIA’ L t P j tiEIA’s Long-term Projection (March 2009)( a c 009)

• Real (inflation adjusted) prices stay relatively flat until early 2020s then riserelatively flat until early 2020s then rise as more expensive resources are developeddeveloped

• Prices vary depending on technology and economic growth assumptionsand economic growth assumptions



I di R l R id ti l N t lIndiana Real Residential Natural Gas Prices (2007 $/mmBtu)( )

14

16History EIA projections

8

10

12

4

6

8

0

2

970

972

974

976

978

980

982

984

986

988

990

992

994

996

998

000

002

004

006

008

010

012

014

016

018

020

022

024

026

028

030

19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Data source: EIA

natural gas prices: past trends and future projections · 2016-12-08 · – pipelines – imports...

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