Demand for US natural gas continues to grow but Standard & Poor's Ratings Services expects robust supplies to continue to temper natural gas prices. Increased production will likely continue to outpace demand growth, keeping natural gas prices less than $4.00 per MMBtu for the next several years, according to a Standard & Poor's report published Aug. 4 titled "US Natural Gas Prices Will Remain Under Pressure As Supply Growth Continues To Outpace Demand."
"The low gas prices will likely soften revenues of exploration and production companies that focus primarily on the production of natural gas, and could more quickly impact operators that didn't hedge natural gas prices when derivative contract pricing was more favorable last year," said Michael Tsai, Standard & Poor's credit analyst.
Standard & Poor's believes the Marcellus shale will remain the front-runner in US natural gas production, with a growing contribution from the Utica shale. Producers operating in both the Marcellus and Utica plays have reported rapid efficiency gains. Improving efficiencies are increasing production per rig, while drilling costs per unit of production are dropping.
Although efficiencies are improving, operators have less incentive to drill more because transportation infrastructure lags far behind production, the report says. However, plans to improve the infrastructure and reverse existing pipelines to move natural gas out of the Northeast should begin to alleviate the bottleneck and support longer-term production growth from the region.
Standard & Poor's expects low gas prices to continue stimulating demand, leading to a pick-up in consumption in the second half of 2015. Retiring coal for power generation will also spur longer-term demand for natural gas.