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Long-term natural gas price forecast at $4.25 Canadian investment bank prediction close to U.S. energy department forecast through 2025 Larry Persily Petroleum News Government Affairs Editor
Long-term natural gas prices continue to show strength, with a Canadian-based investment bank looking at $4.25 per thousand cubic feet as the likely average for North American supplies between 2007 and 2025.
That’s pretty close to the $4.40 forecast (2002 dollars) by the U.S. Department of Energy for domestic wellhead prices in 2025.
And both numbers are in line with what RBC Capital Markets’ oil and gas investment analysts see as the breakeven point at $4.50 per mcf for marginal gas drilling in North America.
All of which are higher than the estimated cost for delivering liquefied natural gas to U.S. ports, which could mean healthy profits for LNG suppliers. RBC analysts believe a delivered price of $3.50 per mcf is needed for LNG economics to work, said analyst Kurt Hallead of the Canadian corporate and investment bank’s Austin, Texas, office.
But that doesn’t mean LNG will sell for $3.50 in the United States, he said. The Department of Energy believes buyers will see little price difference between domestic and imported gas over the next 20 years. LNG at $3.75 allows for small netback RBC’s forecast of at least $3.50 for new LNG projects is in the range of other estimates. U.S. buyers will need to pay about $3.75 for imported LNG in order to allow a return on project developer investments, Muse Stancil, a worldwide energy industry consulting firm headquartered near Dallas, told state of Alaska officials in April.
And R.W. Beck Inc., a nationwide engineering and management consulting firm, puts the price at $3.75 per mcf for LNG delivered to Southern California (including regasification charges). That price assumes a wellhead netback of at least 50 cents per mcf, according to the company’s recent presentation based on information it compiled from Marathon Oil Corp., BP PLC, Sempra Energy and federal officials.
With declining production from mature North America gas fields, LNG and new wells will need to fill the supply and demand gap. And that’s where marginal gas drilling will play an increasing role. RBC said the $4.50 breakeven point for new, marginal production is much higher than a few years ago.
“You’re going to have to drill deeper wells to get it,” Hallead said June 7.Natural gas prices are expected to hold significantly above $4.50 this summer, with $6.11 per mcf for July delivery the June 8 quoted price on the New York Mercantile Exchange. RBC sees the price averaging $5.75 this year and $5.35 in 2005. Demand destruction and new LNG terminals are expected to further reduce the price to an average $4.25 as of 2007, RBC said. High prices forecast through 2005 Those short-term estimates are similar to other investment adviser forecasts compiled by the Department of Energy for a May 18 conference presentation: “Future Trends in the Natural Gas Market.” The forecasts are for Henry Hub prices (with the date the forecast was issued).
• Lehman Brothers; May 11; $5.25 in 2004 and $4.75 in 2005.
• Raymond James Financial; March 22; $5.92 and $6.
• Merrill Lynch & Co.; April 20; $5.25 and $4.75.
• And global oil and gas consultant Cambridge Energy Research Associates; April 16; $5.48 and $6.02.
The Energy Information Administration at the Department of Energy on May 11 issued its prediction for an average price this year at $5.79 per mcf and $6.07 in 2005.
All of the prices are around three times the 1986-1999 average U.S. natural gas spot price of $1.81 per mcf, as reported by the Department of Energy.
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