Rising U.S. shale gas production is driving fear out of the futures market, says Goldman Sachs Group Inc., and will constrain prices for the next two decades.
Gone will be the near tripling of costs to $15.78 as in 2005 as traders remain confident the fuel will be there when needed. Natural gas will trade “largely” at $4 to $5 per million British thermal units for the next 20 years, says Goldman Sachs. Societe Generale SA sees prices at $5 through 2019. Bank of America Corp. forecasts $5.50 for 2017, while BlackRock Inc. projects $4 to $5 for the next decade.
Prices were four times more volatile in 2009 than they are today as production grows for the ninth straight year and new pipelines deliver the fuel to customers. Gas for use next winter costs 3.2 percent more than now, the smallest premium for the peak-demand period since 2000. Stockpiles will start the heating season at the lowest levels since 2008.
“The market is rightfully not that worried because you have so much supply that is coming online,” Jeffrey Currie, head of commodities research at Goldman Sachs in New York, said in a June 23 telephone interview. “We have enough flexibility in the supply system.”
Natural gas futures for July delivery slid 9.7 cents to $4.456 per million Btu at 10:46 a.m. on the New York Mercantile Exchange. The January contract fell 10.1 cents to $4.596, and its premium over the July contract was 14 cents.
The U.S. Energy Information Administration forecasts natural gas prices will average below $5 through 2023 and less than $6 until 2030. The fuel will average less than $5 through 2017, based on analyst estimates compiled by Bloomberg.
Fears of gas shortages have dissipated since 2005, when hurricanes Katrina and Rita damaged Gulf of Mexico production platforms. Offshore gas accounted for 5 percent of U.S. supplies last year, dropping from 17 percent in 2005, as shale-gas output, boosted by hydraulic fracturing, or fracking, surged from Pennsylvania to Texas.
U.S. output will increase 4 percent in 2014 to a record for the fourth consecutive year, according to the EIA, the Energy Department’s statistical arm.
Gross production from the Marcellus field in the Northeast, the country’s largest deposit, will average 15 billion cubic feet a day in July, up 26 percent from a year earlier and 10 times the output in 2009, EIA data show.
“Right now prices are close to or a bit below where the economics are needed to sustain volumes for the longer term,” Poppy Allonby, a portfolio manager at BlackRock’s Commodity Strategies Fund in London. Shale production will keep gas in the $4-$5 range for the next 10 years, though prices may jump with demand from time to time, she said.
The new complacency among gas consumers has reduced trading and lowered prices, Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a June 19 telephone interview.