LOGA Industry Report - Winter 2009 - (Page 36) Natural Gas Market After spending the past five years invading record territory, natural gas prices are beginning what is likely a full-scale retreat. To date, spot natural gas prices are down by more than $11.00 per thousand cubic feet (“Mcf”) or 62 percent from their all-time high set in February 2003. The decrease represents a mixed blessing, one well received by consumers weary of high prices, but one viewed with caution by producers. The next six months are likely to be one of the more important transition periods for gas markets not seen since the post-Katrina/Rita winter heating season of 2005. Figure 1. U.S. Natural Gas Production, 1973 to July 2008 Supply Outlook While the last several years have been filled with producer challenges, Figure 1 shows that July natural gas production increased to a level (1.86 trillion cubic feet or “Tcf”) not seen since May 1974. Natural gas reserves, at 211 Tcf, were at their highest level since 1977. Current forecasts anticipate continued natural gas production increases over the next six quarters to more than 60 billion cubic feet per day (“Bcf/d”), primarily driven by unconventional production. Should these forecasts materialize, 2009 production could continue to attain levels not seen since the early 1970s. Some caution, however, needs to be exercised in considering these forecasts, most of which were developed prior to the 2008 hurricanes and the recent global financial and economic meltdown. For instance, current forecasts anticipate GOM production will hold relatively constant at around 8 Bcf/d with slope production offsetting ever increasing declines on the shelf. However, GOM natural gas production is down by as much as 2.2 Bcf/d (almost 30 percent decrease relative to pre-storm levels) since the 2008 hurricanes and is not likely to resume until prices reach more favorable support levels. Source: Energy Information Administration, US Department of Energy Figure 2. U.S. Natural Gas Proved Reserves, 1973 to 2006 Demand Outlook The real driver for natural gas markets over the next six months will be industrial and power generation demand. These two sectors account for more than half of the overall market and most of the recent growth in natural gas demand. If demand Source: Energy Information Administration, US Department of Energy 36 | LOGA INDUSTRY REPORT | WINTER 2009
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