Report predicts 20 years of stable natural gas prices

The price of U.S.-produced natural gas will remain stable and relatively low for at least the next two decades, boosting opportunities for exploiting the fuel’s economic and environmental benefits, according to an industry-supported report Thursday.

The report by business information firm IHS projects that natural gas will sell for an average $4-$5 per million British thermal units, adjusted for inflation, through 2035. It was trading around $4.40 on the New York Mercantile Exchange Thursday. The price of crude oil will remain three to four times higher on an energy-equivalent bases, IHS said.

Advances in horizontal drilling and hydraulic fracturing have led to a dramatic turnaround in natural gas production over the past few years.  Viewed as increasingly scarce just a decade ago, when its price rose above $15 per million Btu, natural gas produced from unconventional tight reservoirs now is plentiful and cheap, leading to reassessments of the entire U.S. energy landscape.

IHS, in its report supported by the American Gas Foundation, a research arm of the American Gas Association utility trade group, said unconventional natural gas resources totaling 900 trillion cubic feet can be produced economically when gas trades at $4 or even less.

“This means that the North American natural gas resource base can accommodate significant increases in demand without requiring a significantly higher price to elicit new supply,” IHS said in a news release accompanying the report, “Fueling the Future with Natural Gas: Bringing it Home.”

The study predicted a continuing price disparity between natural gas and other energy sources, projecting that heating oil will cost twice as much as residential natural gas, and electricity 3.5 times as much.

That presents a possibility for savings on home and water heating, the report said, noting also that natural gas combustion emits less greenhouse gas than burning of other fossil fuels.

But there are impediments, both to consumers and natural gas utilities, to taking full advantage of the changed circumstance.

These include high upfront costs for consumers to convert to natural gas use, and investment required of utilities to deliver the fuel to new customers.

Additionally, IHS said, some policy objectives and regulations are based on outdated assumption about natural gas supplies and costs.

“Specific opportunities will vary from one region to another and may require regulatory change, policy support, and financial and technological innovation to be fully realized,” IHS said.

It also noted that nascent use of natural gas as a transportation fuel, which focuses now on fleets and heavy duty vehicles, will be slower  to reach private light duty vehicles because of economics and consumer resistance.

Consumer worries include uncertainly about fuel availability, driving range and vehicle resale value, according to the report.

Of the 230 million light-duty vehicles on the road in 2012, the report said, only 100,000 were fueled with natural gas, partly because of the time it takes to recover initial investments in converting gasoline-powered vehicles to run on natural gas or purchasing vehicles designed for natural gas.

“Payback periods are much shorter for heavy-duty trucks than for personal automobiles owing to the much higher vehicle miles traveled by the trucks,” the report said. “Natural gas-fueled personal automobiles will also have to compete not only with gasoline-fueled automobiles, but also with vehicles propelled by much more efficient electric motors.”

The industry and policy-makers can overcome some consumer resistance to natural gas vehicles through technology to reduce the cost of refueling infrastructure and tax incentives for natural gas vehicles comparable to credits available for electric cars, IHS said.