Analyst sees near-term natural gas prices below $3/MMbtu

Natural gas prices are expected to hover below $3/MMbtu for 6-24 months, primarily bouncing between $1.75/MMbtu and $2.50/MMbtu, David Cunningham, managing director of Tudor, Pickering, Holt & Co., told a Mayer Brown LLP energy conference on May 23.

“Long term, we see the price at $5/MMbtu,” Cunningham said, referring to average prices on the New York Mercantile Exchange in 3-5 years. He noted that gas producers are getting more efficient and lowering their costs so future break-even levels could move lower.

Currently gas production is not economic because the break-even point for most US gas basins is at least $3/MMbtu, he said. Investors instead have shifted their focus toward liquids plays.

A price of $5-5.50/MMbtu is the price level at which investors will regain confidence in the gas industry, Cunningham said.

Associated gas from unconventional liquids plays is a popular topic, Cunningham said. Even though the US currently is in a gas supply overhang, associated gas production still brings revenue for producers.

“Today we are flaring gas in the Bakken because we don’t have the infrastructure in place,” Cunningham said. Many pipeline projects are under way or in the planning stages for the Bakken formation in North Dakota and Montana.

The US needs additional demand for gas, Cunningham said. He believes the rig count will fall in coming months.

Contact Paula Dittrick at paulad@ogjonline.com.

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