Natural Gas Price Volatility on the Horizon

July 26th, 2017:

American Energy Coalition – July 26th, 2017

“Are the days of cheap natural gas numbered?” The answer seems to be a resounding yes, according to experts like Andrew Weissman, founder of EBW Analytics, who recently spoke at the National Association of Regulatory Commissions’ summer meetings in San Diego. Utility Dive reports:

Even given the explosive growth of natural gas production in this decade, Weissman said, “we’re still at an early stage of the unprecedented growth in natural gas produced in the U.S. We’re likely to see at least a 20 bcf/day increase over the period of the next few years — it could be greater — triggered by increases across the board. A lot of it is baked in with new combined cycle [gas generation] units being built right now and … pipeline exports to Mexico, but perhaps the most important part is we are starting to see explosive growth in U.S. LNG export capability.”

There are more than $40 billion in new LNG export facilities currently being built, Weissman said — a stark contrast to a decade ago, when U.S. gas companies were configuring import terminals to bring in the resource from abroad. While questions remain about how many facilities will be completed and what their utilization rates will be, “there’s no question that there will be a tremendous increase in the demand for natural gas and we could see even more growth further down the line,” he added.

That could pose a problem for generators and gas utilities alike. Already, Weissman said, natural gas is prone to price volatility because it is expensive to store and most storage facilities exist to smooth out seasonal shifts in demand. Because winter demand for gas is difficult to predict — mostly contingent on weather — it’s easy for demand to outpace local supplies and lead to higher prices.

U.S. gas production is among the most nimble drilling industries in the world, but even it would take “the better part of a year” before it could respond to tight winter supplies with enhanced production, “so you may for a period of many months have sharp price spikes.”

The coming increases in gas demand driven by LNG exports could “multiply this volatility several-fold,” Weissman said. Just two years from now, he said, NARUC could be holding panel discussions about “the severe price spikes in 2019” due to high demand for LNG and a cold winter worldwide. Exacerbating the issue is the continued difficulty n siting natural gas infrastructure — particularly pipelines, which are stalled in New England due to citizen opposition — and the need for more gas storage, Weissman said.

“We do not have a plan to build all the natural gas pipeline infrastructure we’re going to need for the market to function typically by later in this decade,” he said, “and that could lead to price spikes and regional variations in gas prices.”

Click here to read the full Utility Dive story.

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