Strong Natural Gas Prices And Tight Supply In 2017

forbes-A year ago, most analysts were bearish about natural gas prices.   I wrote that natural gas prices might double and they did. Today, most analysts are again bearish about gas prices and again, I think that they are probably wrong at least for 2017. The mainstream narrative is that new pipeline capacity—notably the Rover Pipeline—out of the Marcellus and Utica shale plays will unleash a torrent of pent-up supply. That is because over-production in these plays has saturated the northeastern U.S. markets and 2016 wellhead prices averaged about $0.88/mmBtu less than Henry Hub prices (Figure 1). New take-away capacity to higher-priced markets will fix that problem but gas prices will plummet later in 2017 because of increased output. Strong Natural Gas Prices marcellus-wellhead-prices-were-0-88-less-than-henry-hub-in-2016
Figure 1. Marcellus Wellhead Prices Were $0.88 per mmBtu Less Than Henry Hub Prices in 2016. Source: MarcellusGas.Org, EIA and Labyrinth Consulting Services, Inc. Systematic overproduction turned the northeastern U.S. from the highest-margin market to the lowest by 2013. With a second chance to at least be on par with national pricing, shale gas companies will, according to the narrative, over-produce the entire U.S. market to a loss once again. Smart. Conventional Gas, Shale Gas and Net Imports There are three components to gas supply: conventional gas production, shale gas production, and imports. These must be understood to establish a context for a potential supply increase from the Marcellus and Utica shale plays. There is no doubt that low prices resulted in a 4.26 bcf/d (billion cubic feet of gas per day) decline in gas production from September 2015 through October 2016

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