Integrating North America’s abundant shale gas resources into global markets keeps prices subdued: NBP averaged at $10/mmBtu in 2011-14 and by 2016 lost more than half of its value, hovering around $4.63/mmBtu. According to Societe Generale analysis, natural gas is now in a unique position to help regions transition away from coal- and oil-fuelled power generation.
Excess growth in global LNG supply, notably through the ramp-up of US LNG through 2018 and into 2019, will make European gas prices “move through the coal floor [price]”. Fuel-switching in the Western European power market, according to Societe Generale, will ultimately be determined by short-term gas prices hinging at the variable cost of shipping a US LNG cargo to Europe.
Natural gas-fuelled power generation in the United States reached its highest daily level at 41 Bcf/day on July 20 – just a tick lower than the 2016 peak of 42 Bcf/d seen on August 11 last year. Higher gas prices relative to last summer explain part of the decrease; but PointLogic Energy analysts stressed that “although power burn in 2017 is lower than in 2016, it is still relatively high compared with the previous five-year average for that period.”
May 02 – With Henry Hub having stayed just below the fuel switching trigger of 3.08 $/mmbtu (7,100 gas vs 10,300 coal) during the past week, Energy Aspects forecast that gas prices in the Northeast and Midwest, “should see support this week on maintenance-related output cuts and colder Midwest temperatures.” Analysts also said in a note that “Henry Hub should also see limited support from the dip in output this week, as well as a slightly more constructive weather forecast for May.”
Shale oil and gas production from the Appalachian Basin's Utica play has hit 3.5 Bcf/d this June, jumping from very low levels of 0.1 Bcf/d in December 2012. The surge in output from the vast Utica play keeps a lid on US natural gas prices and incentivise more power station operators to shift from coal to gas. The capacity factor for CCGTs has risen to 56% and is expected to increase further.
Gas demand from the US power sector has been coming down from peak summer levels as the heat wave gradually abates, ending the need to tap gas storage. Analysts at Energy Aspects see gas burns for power over the two-week period ending August 12 averaging around 37.5 bcf/d, up by a modest 0.7 bcf/d year-on-year.
As natural gas plant liquids (NGPL) are sourced from gas production streams or in association with crude oil production, future NGPL production largely depends on the price differential between oil and natural gas. EIA analysts anticipate a significant rise in liquid fuel production beyond 2017.
As the heat wave in Central and Eastern US eases, gas demand from the power sector is tapering off. Energy Aspects forecasts gas-burn for power over the first two weeks of August to average around 38 Bcf/d while Henry Hub cash prices are seen “stabilising at levels just above the fuel switching price trigger that now sits at 2.73 $/mmBtu.”
Jul 18 – With Henry Hub now near 2.77 $/mmBtu, prices have softened from the last fuel switching trigger of 2.99 $/mmbtu (6,300 gas vs 11,300 coal), Energy Aspects said in a note. “Pricing more gas into merit over coal,” would be achievable at the next major fuel switching level seen at 2.59 $/mmbtu (7,500 gas vs 10,000 coal). For comparison, CSX August delivery coal prices rose slightly w/w, at 38 $/t.
With exports of pipeline gas to Mexico on the rise, and LNG exports from Louisiana ramping up, the United States is forecast to become a net exporter of natural gas by the second half of next year. "For the first time since 1957, the United States is on track to export more natural gas than it imports,” commented said EIA Administrator Adam Sieminski. Yet, the spread widens between Marcellus spot and Henry Hub gas prices.