Why Natural Gas Should Stay Cheap -- For a Long Time

Natural Gas Drops To Five-Month Low After U.S. Stockpile Report
Derick E. Hingle/Bloomberg via Getty Images
By Patti Domm

Natural gas prices are likely to stay low for at least the next 20 years, with a long term annual average price of $4 to $5 per million Btu, a new study says.

Even with new demand, the quantity of U.S. gas resources is so vast thanks to unconventional drilling techniques that average Henry Hub prices should not rise dramatically from the $4 to $5 range, though they could fluctuate. (Henry Hub, based in Louisiana, is the delivery point for physical natural gas traded in the Nymex futures market.) Henry Hub prices averaged $4.24 per million British thermal units in December, and hit a high above $13 per million Btu in October 2005.

"We now have knowledge and comfort that we have an incredible resource base-technically recoverable resources of 3,000 trillion cubic feet," said Rita Beale,
IHS senior director of power, gas, coal and renewables. "We have 900 tcfs of gas that can be recovered for $4 or less."

Natural gas futures were trading Friday at $4.34 per million Btu on the Nymex.

Beale said the projection is a long term average and that higher demand in some years could mean increased pressure on prices, like in 2015-2016, when a large number of coal-powered plants will shut down.

"There will be more gas in the power grid, and we'll have more chemical plants coming on line," she said in an interview. "We do think we'll have prices rising gently, not spike."

She also does not expect U.S. gas prices to rise to prices elsewhere in the world, once the U.S. begins exporting gas, expected to begin in 2019. Prices in Asia and elsewhere can be in double digits, and they are linked to oil prices.

The study says that challenges to natural gas use include conversion costs and regulations that can discourage economical natural gas projects.

The report also looks at the opportunity for natural gas in transportation, now in its infancy, and notes that never before has oil's dominance in vehicles been challenged by such low gas prices.

For instance, retail gasoline and diesel prices are expected to be double the cost of equivalent natural gas.

Thanks to cheaper supply from shale gas production, projects are already underway to convert to natural gas.

More from CNBC

Increase your money and finance knowledge from home

Basics of Diversification

Learn one of the fundamental concepts of building a portfolio.

View Course »

Introduction to Preferred Shares

Learn the difference between preferred and common shares.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

We need to cut the head off of the Wall Street Cheerleader and let the air out of their lies.

Die Cramer!

January 20 2014 at 3:54 PM Report abuse +2 rate up rate down Reply

Because Obummer is fueling the Nation with his Marijuana and Jim Pumper Cramer - the Wall Street Cheerleader is cheering him on.

January 20 2014 at 3:52 PM Report abuse rate up rate down Reply

It will stay low just long enough to SUCKER everyone into using it. THEN the Commodity Market Traitors will use every excuse under the sun to bid and jack it. JUST LIKE CRUDE/GASOLINE they will control the supply to control the PRICE. We are not stupid, we have seen it time and time again.

January 20 2014 at 6:24 AM Report abuse +4 rate up rate down Reply

never happen

January 20 2014 at 12:45 AM Report abuse rate up rate down Reply

Natural gas prices go up every year. The US will never be able to produce enough to even take care of homes and keep the price affordable. We need to switch from cars to mass transit, build energy efficient homes, stores etc. Use candles

January 18 2014 at 2:12 PM Report abuse +3 rate up rate down Reply

As we close all the coal fired power plants and convert cars trucks and railroad locomotives to natural gas what do you think will happen to the cost of heating our homes. It will become sky high as there will be no alternative. We have a large supply of coal, let's use it. Nuclear for electric also. Leave the gas for home heating that we can afford.

January 17 2014 at 8:22 PM Report abuse +4 rate up rate down Reply