Fracking keeps natural gas prices low as summer demand expected to hit record high

Increased use of natural gas for electrical generation, more projects coming online in natural gas-intensive industries

By Matt Mandel, Energy In Depth

Despite rapidly growing demand for natural gas, consumer prices are expected to drop, according to the the Natural Gas Supply Association’s annual 2016 Summer Outlook for Natural Gas.

Demand for natural gas this summer is expected to increase by about 4.1 to 31.6 BCFD – a record amount.

While many factors influence demand, the report points to the use of natural gas for electric generation as the main driver of demand growth this summer.

Specifically, the report refers to “structural changes” in electric generation, or the increase in natural gas-fired generation capacity, as accounting for a majority of the growth. According to the report:

“For summer gas demand the net effect of this structural change within the electric industry is an estimated increase in electric sector gas consumption of approximately 2.2 BCFD (i.e., about 70 percent of the overall increase in electric sector gas consumption).” (p. 9; emphasis added)

The Association also points to factors such as residential and commercial use, liquefied natural gas (LNG) exports, and industrial expansion projects that make use of inexpensive natural gas, as influencing demand growth.

For example, the report mentions that there are 106 likely capacity expansion projects in industries that rely heavily on natural gas, such as “fertilizer, petrochemical, methanol, steel and paper and pulp industries.”

Because fracking has unlocked abundant sources of domestic natural gas, these projects have expanded rapidly, as seven were completed in 2015 and 61 are set to come online between 2016 and 2020.

With 15 of these 61 projects set to come online in 2016 alone, the report predicts industrial use of natural gas to increase by 650 million cubic feet per day.

Usually when demand is great, consumers end up with higher prices. But as the NGSA report points out, high production levels and natural gas storage inventories means there is more than enough supply to keep up with demand.

According to the report, storage inventories were up 67 percent higher than the same time last summer. This means that a smaller amount of natural gas will be stored each week to meet the level of gas needed for the winter heating season.

Since less gas will be stored, more will be sold this summer, thus lowering the price. Couple this large supply with efficiencies in production, and the overall excess supply will drive prices down, according to the report. As the report’s executive summary mentions:

 “Filling storage to adequate levels will require weekly injections that are only about half the size of last summer’s. Storage is forecasted to place downward pressure on prices.

“Production is projected to reach or slightly exceed last summer’s robust levels, even though rig counts have decreased. The increased production is a result of continued advances in drilling efficiency and a number of offshore and onshore wells coming online. Similar summer-over-summer levels of production are likely to result in neutral pressure on natural gas prices.”

U.S. shale development is already saving consumers at the pump, just in time for those summer road trips. And as this shows, even with demand for natural gas projected to reach record highs this summer, the abundance of natural gas thanks to fracking means natural gas prices will remain low, saving consumers even more money.

Additionally, the increased reliance on natural gas for electrical generation, as well as more projects coming online in natural gas-intensive industries, proves that natural gas, and fracking, will be vital for years to come.

This article was edited. The original was posted June 2, 2016 at EnergyInDepth.