The prospects for natural gas producers are not large. They are dressed in low prices today, in the midst of a glut. But in the medium and long term, even worse, while renewable energy is increasingly gaining market share.
The gas industry has drilled into this difficulty. Gas production continues to rattle higher and rapidly replenishing inventories, which had plunged into a 15-year low position into the last winter season. Inventories are still below the five-year average, but have risen rapidly in recent months.
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If the natural gas industry had hoped that a great wave of heat sweeping over a large stretch of the east coast would save prices, they are probably now disappointed. Despite the heat, the price of natural gas continues to fall, and there is little prospect of a backlash. On Friday, natural gas prices fell by a further 3 per cent, and dipped below $ 2.20 / MMBtu.
Record production from Marcellus is one of the main reasons. But oil drilling is also to blame. The insane pace of the drilling in Perm, which, to be sure, has slowed down already late, has produced a wave of natural gas so large that the industry is flaring huge volumes of gas due to a shortage of pipelines. Texas regulators do not seem willing to regulate the frequency of flaring in fear of harming the industry, so flaring continues. Related: Is this the latest bottleneck for Nord Stream 2?
Still, record levels for associated gas production from the Perm figure are still decreasing. New mid-flow capacity later this year from the Gulf Coast Express pipeline will bring more gas to the market, which will provide students with supplies. Several pipelines are on the way for 2020 and 2021
Even the increasing volumes of gas exported abroad are not enough to tighten up the market. "We expect the current oversupply to persist when production growth, mainly associated with oil gobs, matches LNG export growth next year," Bank of America Merrill Lynch wrote in a note.
While some of this is not new news, it is surprising that the prospect does not seem to improve anymore. There is little reason to expect things to turn around. Gas production continues to increase, and inventories will be well stocked next winter. "[T] oo a lot of gas past the winter is pushing for next summer and will allow us to maintain our $ 2.6 / MMbtu pricing for the 2020 strip," Bank of America said. Related: Why oil tankers in the Middle East should not hire mercenaries
Even more shocking is that the investment bank said that the market is becoming more depressed as we move into 2021. "Our high 4.5 tcf stock outlook The 2021 is pretty gloomy and runs our 2021 average price warning of $ 2.4 / MMbtu, which is $ 0.15 / MMbtu below today's curve, "the bank said.
Beyond that, the queue of new LNG projects dries up, An abundance of LNG capacity in recent years leads to a shortage of FIDs in new export facilities, as the list of projects under construction is closing, there are few projects coming in behind them. the problem is, in our opinion, not the growth of LNG export capacity the next year, but is instead the lack of LNG capacity grants in 2021-2023, "Bank of America said." During the slow growth of US LNG export growth, will the US likely ice had to rely on a combination of other sources of demand and a decline in production growth. "
But here it becomes very difficult for the gas industry. Even in the midst of the current market, demand has also grown quite a bit. Cheap gas has opened up new markets in petrochemicals, electric power and exports. But in the mid-2020s, renewable energy begins to eat into the gas industry's market share. To date, natural gas in the electricity sector has grown sharply and exploited market shares from the fatally wounded coal industry. But in the 2020s, gas will have a tougher time, as it begins to fall for pure energy.
Scripture is already on the wall. NextEra Energy Resources signed an agreement the last few days that can give a glimpse of the future. The agreement with Oklahoma-based Western Farmers Electric Cooperative requires a renewable combination – 250 megawatts of wind, 250 MW of solar energy and 200 MW of battery storage. Integrated together, the project addresses intermittency concerns. The kicker? It is cheaper than natural gas. Phillip Schaeffer, the most important resource planning engineer at Western Farmers, said it's actually cheaper, economical than a similar sized gas speaker system, especially with the tax credits available. "Prices have fallen significantly in recent years."
As the agreement shows, this is not an abstract distant threat to gas. Gas loses on renewable energy today. "[R] new energy can provide headwind for the natural gas power sector," Bank of America said. "Wind and solar projects, even without subsidies, are now competitive with the construction of natural gas production, which is a depressing statistics for potential natural gas bulls in the longer term."
"The silence of LNG is demanding growth that begins in 2021 and renewable headwinds are too much for the natural gas market to overcome," concluded Bank of America. Natural gas companies will eventually have to brake the brakes again, the bank said.
By Nick Cunningham from Oilprice.com
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