Natural gas price levels recently reached a five year high. However, just before an Energy Information Administration report release that may state that natural gas inventories have fallen by 257 billion cubic feet, natural gas prices declined to just over four percent. In reality, the report stated that the natural gas inventories fell by 250 billion cubic feet. Meanwhile, at the same time last year, natural gas supplies only fell by 127 billion cubic feet.
You may have noted that natural gas prices have increased substantially in value over the past few months – mainly due to cooler than normal temperatures. However, this upward trend is not enough to convince some organizations to believe that the prices will stay higher – at least for the mid-term.
For instance, the CEO for Calgary, Alberta-based Encana Corp says that while prices have increased over the past few months due to cold, inclement weather, he believes that with the current natural gas price volatility, he is uncertain about the sustainability of these high prices. In fact, he believes that the price of natural gas will average in at around $3.50 to $4.50 US per 1000 cubic feet over the next three to four years. After this time period, he predicts that the price of natural gas will increase above these levels.
Additionally, with these higher prices, many utilities in the United States have been shifting to coal to generate electricity. According to the US Energy Information Administration, the use of coal in energy generation can increase to 40.3 percent by 2017 – up from a 39 percent share in 2013. During that same time period, this organization also believes that natural gas share in energy production will decrease from 27.5 percent to 27 percent.
Further, while China significantly relies on coal to generate electricity, in 2013, China imported 53.4 billion cubic meters of gas or approximately 31.5 percent of its natural gas requirements. Last year, according to the Chinese government, the country produced 121 billion cubic meters of natural gas, a 9.8 percent increase over the 2012 levels. The 2013 output includes 3 billion cubic meters of coal-seam gas and 200 million cubic meters of shale gas.
Overall then, while the prices of natural gas have increased substantially over the past few months, there are indications that this trend will not continue over the next few years.
