Natural gas producers won’t get much relief from the commodity’s low price in 2013, researchers at Standard & Poor’s Ratings Services forecast in a report released this week.
The price of North American gas will remain below $4 per thousand cubic feet, either stagnating or declining slightly over 2013, the rating agency projected. To generate a profit, producers need prices in the range of $4 to $4.50 at least, the S&P researchers wrote.
“Current prices are not likely to result in a rush back into gas basins,” the report states.
Despite the rapid exodus of drilling rigs from natural gas fields, production has remained high and Standard & Poor’s expects the abundance to continue through 2013. The forecast notes that after a well is drilled, it takes time to prepare it for production and connect it to gathering systems. Further contributing to high level of gas on the market, technology has made shale gas wells more productive and natural gas can be produced as a byproduct from oil wells.
“We expect 2013 gas output in the U.S. to be about the same as this year’s – even though the pace of drilling new gas wells slowed,” the report states. “And although gas production is likely to fall after 2013, the decline will probably be less than directly proportional to the drop in number of rigs.”
Meanwhile, S&P forecasts that the power industry’s trend of switching from coal-fired electricity generation to natural gas-fired, which fueled the rise in demand for the fossil fuel this year, will cease and cause natural gas consumption to level off in 2013.
“Current gas prices are high enough to deter coal to gas switching and construction of additional gas-fired generation capacity is not imminent,” the researchers wrote. “Other potential sources of demand, such as transportation fuel and expanded chemical production, could help gas prices in the long term, but not enough to cause a rise in the short run.”
Natural gas has rebounded a bit from its precipitous fall. The price slumped below $2 per thousand cubic feet earlier this year, but has risen to about $3.70 now. But the price reached as high as $13.50 in 2008, before the confluence of the economic recession and the shale gas rush.