Natural Gas Prices Forecasted Through 2035

At the current rate of consumption, it is now widely agreed that the U.S. natural gas resource base could be sufficient for the next 100 years, according to a recent report published by IHS CERA. The report also speculates that natural gas prices will remain in the $4 to $5 range per million British thermal units[1] (MMBtu) through 2035 (in constant 2012 dollars). In comparison, the price of crude oil is expected to remain around $90 per barrel (in constant 2012 dollars) or about $16 per MMBtu. The retail/residential natural gas prices are expected to remain below $11 per MMBtu through 2035 (in constant 2012 dollars); the retail costs of gasoline and diesel fuel are expected to be approximately twice the price of natural gas on a Btu-equivalent basis.

Continually low natural gas prices relative to other fuels will encourage increased natural gas demand in all sectors. Residential and commercial customers may increase their everyday natural gas consumption with new gas appliances and heating systems. As a result, the increased demand could encourage suppliers to expedite improvements of the natural gas infrastructure. Industrial use of natural gas is expected to expand as well, particularly in those gas-intensive industries experiencing growth, such as primary metals.

The power sector is expected to show the greatest increase in natural gas demand. Natural gas-powered generators are already beginning to replace coal-burning units, and many modern power plants currently have the ability to switch between burning natural gas and coal as prices fluctuate. The shift from coal to natural gas has not only cost benefits, but environmental benefits as well. Compared to the emission from a coal-powered generator, natural gas produces half as much carbon dioxide, less than a third as much nitrogen oxides and only one percent as much sulfur oxides.

Natural gas has been slower to penetrate the transportation sector, but the persistent price differential between natural gas and gasoline/diesel prices will encourage the use and production of natural gas vehicles. Currently, natural gas is used most extensively for local deliveries where refueling can be ensured, so growth as a transportation fuel is also dependent on the expansion of local gas distribution companies, which again will follow consumer demand.  

For many years, the potential for natural gas was based on the assumption that the resource was scarce. Based on the projected abundance, an opportunity now exists to rethink business models, reform energy policies, and invest in research and development for the next generation of natural gas-powered energy technologies.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

 

[1] Natural gas and other forms of energy are measured by the potential heat that can be generated from the fuel, and the potential heat is expressed in British thermal units (Btus). One gallon of gasoline has approximately 112,500 to 114,500 Btus, depending on the mix. And some residential heating bills will express energy as Therms (1 therm equals 100,000 Btus).

 

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