Market analysis shows bleak future for natural gas prices
Energy Market Analyst Hakan Corapcioglu with Drilling Info paid a visit to the monthly Garfield County Energy Advisory Board meeting to give his thoughts on the natural gas and crude oil market in the U.S.
While he’s optimistic about drilling in Garfield County, demand remains his biggest concern, he said.
Corapcioglu praised the industry for its production growth, particularly from December 2016 through this year. But he said demand growth is not fast enough to match that production.
“With production growth we have today, demand side is weak for both crude oil and natural gas,” he said at the Dec. 7 EAB meeting in Rifle.
He estimates that next year the U.S. will be surpassing 10 million barrels a day in production, something it has never done before. By 2020 that number could reach 12 million barrels a day.
The problem is, demand hasn’t quite kept up. One reason for that is because of all the natural gas coming from crude oil production, he said.
He said that if all the pure gas producers stopped drilling today, the U.S. would still put out 11 billion cubic feet per day through 2021 via crude production.
With so much supply, outlook on natural gas prices stayed low, Corapcioglu said.
He expects natural gas prices to close the year at $3.15 to $3.20, on average, and hopes that number will stay in the $3 range for next year. However, his expectation is the price will drop closer to $2.80 to $2.85 due to increased crude gas production.
While he sees room for economics to improve, one piece of good news is that the Piceance Basin remains a good investment for producers.
“Good news is that the Piceance Basin break evens are still very good compared to other pure gas producers,” he added.
When asked what the local natural gas industry should ask Santa for Christmas, he said to pray and ask for a cold winter and warm summer.
“Cold winter is very important to natural gas prices,” he explained. “Cold winter pushes demand by 6 bcf per day. We haven’t seen a cold winter for two years, and that’s why prices are struggling.”
While demand continues to struggle to reach supply, one reason for optimism is the potential approval of the Jordan Cove terminal for the northwest region.
The proposal would connect the Pacific Northwest with existing pipelines in the Piceance Basin and transport gas to a terminal where it could be exported to markets in the Pacific and elsewhere.
Most of the gas produced in the Rockies goes to California, and Corapcioglu doesn’t expect much growth in natural gas demand for California. However, Jordan Cove could change that, he said.
“Pipelines that push gas from the Rockies to California are almost full,” he explained, so if Jordan Cove comes online it will help eliminate the bottle neck to the area to push some natural gas to the northwest.