Natural gas prices are likely to be range bound

According to Fitch Ratings, natural gas prices are likely to stay in a range between US$ 3 – 4.50/thousand ft³ over the next few years. Prices are expected to remain volatile due to weather impacts but should continue to be range bound due to the substantial amount of oversupply that continues to affect the market and limited visibility on new demand to soak up that supply.

Gas price floor and ceiling

Fitch believes power demand from coal to gas switching will provide a floor around US$ 3.00 and producer response will provide a ceiling near US$ 4.50. In 2014, a Henry Hub model that averages US$ 4.00/thousand ft³ is presented as a base case by Fitch and a long term base case price of US$ 4.50 is modelled.

A matter of production

Inventories are back in line with pre 2012 historical averages, but production is still at an all time high and prices remain under pressure below US$ 4.00. Increasing production of associated gas from liquids rich field in North America have more than offset lower rig counts for dry gas basins, and ethane rejection should continue to have a negative impact on prices.

Fitch expect some near term incremental demand response, but major demand additions from coal and nuclear power plant retirements, LNG export, and new chemical plants are not due to be completed until 2016 – 18.

Adapted from press release by Claira Lloyd.

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