HOUSTON — Natural gas prices have been on the rise this winter, but they are likely to fall in the coming months because of limited demand for the fuel and because of coal.
A chill that left the country 13 percent colder than normal for winter months over the last 15 years spurred Americans to use a lot of natural gas for heating, said Mary Barcella, director of North American natural gas research at IHS CERA.
As a result, supplies of natural gas in storage are currently down 16 percent from a year ago, according to the U.S. Energy Information Administration.
Still, prices for natural gas probably won’t rise much higher than they are now, Barcella said.
Natural gas for January delivery was selling Friday for about $4.36 per million British thermal units on the New York Mercantile Exchange.
Coal-fired power plants are a major factor keeping natural gas prices low, Barcella said.
When natural gas prices are low, power producers burn more natural gas and less coal, but as natural gas prices close in on $5, coal power plants run at higher rates, she said.
“When the gas prices go back up the reverse happens,” Barcella said. “Coal will go back online for power generation. So it’s that dynamic that’s going to keep the gas prices from going too high.”
Natural gas drilling is also a factor, said James Sullivan, a senior analyst for investment research firm Alembic Global Advisors.
As natural gas prices get closer to $5 per million British thermal units, oil and gas companies are likely to deploy more rigs to drill for the fuel, adding to supply and likely pushing prices down again, Sullivan said.
“Fair price for natural gas is probably somewhere between 3.50 to 4.50 per (million British thermal units),” Sullivan said. “The thing that will move that outside of that band will be probably winter weather. A very cold winter can push it up to a $5 per (million British thermal units) range.”
Barcella said a price as high as $5 was unlikely this year, and even for the next 16 years.
A price between $3.50 and $4.25 is more likely, she said.
“We think that certainly from now to 2020, and really now to 2030, we think that prices will cycle within that range with some temporary excursions above or below,” Barcella said.
When prices have typically dropped toward $3.50 per million British thermal units of natural gas, companies have halted natural drilling operations in most areas. But as prices have gone above $4.50 per million British thermal units, companies have added rigs.
Even with new demand for natural gas coming online in the coming years, from new power plants, chemical plants or liquefied natural gas export facilities, prices will likely stay within that range, she said.
“We think the resource base in this country is sufficient to meet the new demand without a strong increase in prices,” Barcella said.