Natural gas prices are up 60% and still cheap

Natural gas prices were up nearly 60 percent in the first half of 2013, compared with the same period last year, but they were still too low to inspire new drilling in much of the country, according to the U.S. Energy Information Administration.

Contracts for future delivery of natural gas currently are selling at about $3.70 per million British thermal units, just below the $3.75 average for natural gas in the first half of 2013, the agency said.

In 2012, natural gas sold for an average of $2.39 through the first half of the year, the agency reported.

The 57 percent jump in prices was enough to push many power generators to switch from burning natural gas to using coal, since it is more economic at current prices, the agency said.

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But $3.70 is by no means a high price, remaining too low to be of interest for most producers hoping to make a profit, said James Sullivan, senior analyst for Alembic Global Advisors, which has been tracking natural gas prices.

Natural gas prices would likely have to be near $5 to encourage more drilling for the resource, with most companies believing that producing it would not be profitable below that range, Sullivan said.

But the outlook for natural gas prices remains low in the near future, he said.

“In the shale era, the average value through the course of the year…should be somewhere between $3.50 and $4.50,” Sullivan said.

Prices are staying low because of sweeping efforts to produce more oil from shale plays in the United States. Most of those shale oil wells produce oil along with large quantities natural gas, Sullivan said.

Report: Abundant natural gas means no big price increases

“There is a fair amount of gas supply being added that is not reliant on the gas price,” Sullivan said. “In other words, oil and liquids-rich drilling in the Permian Basin and the Eagle Ford is producing as much as 30 percent, or in some cases 45 percent natural gas. That’s natural gas that will be drilled at any gas price. As long as oil prices remain high people are going to drill that.”

The only area that has seen growth in natural gas production, despite the low prices, has been the Marcellus shale region in the Northeast. Companies are still actively drilling there because the wells don’t have to be very deep and are highly productive, making them economic, Sullivan said.