After seeing natural gas prices basically double since this time last year, ICF International (Nasdaq: ICFI) Vice President for Gas Markets Kevin Petak expects to see gas prices stay in the $4 to $5/mmBtu ballpark for the next year or two.
Petak offered his outlook on the domestic natural gas industry in an April 30 webinar hosted by ICF.
The price will be affected by variables including weather, economic growth, coal-to-gas switching (or the opposite), coal plant retirements and changes in gas production and storage levels, Petak said.
One key factor on the production side will be how quickly gas producers respond to price movements. The $4 market doesn’t appear to have “really sunk in yet” with producers, Petak said.
The ICF official started his presentation by looking back to opening months of 2012 when gas prices were hovering around $2.20 and some observers were predicting they could slip below $1.50. As things turned out, the Nymex natural gas futures price posted daily by the Energy Information Administration has been consistently above $4 in recent weeks.
Petak noted that instead of coal-to-gas switching, some electric utilities have switched some of their generating load from gas to coal. The long-term trend, from at least 2015 to 2025, points toward increased use of natural gas in the power industry, Petak said.
Why the change in gas prices over the past year? “I always focus on the weather,” as a good starting point in analyzing North American markets, Petak said. The 2011/2012 winter was “by far, the warmest on record in recent history,” Petak said.
By contrast the winter weather in January 2013 was much closer to normal and so was natural gas demand, Petak said.
While gas production has grown significantly since 2005, thanks to the shale gas revolution, the trend seemed to stall in 2012.
Read more financial news