Natural Gas: An Update for the Second Half of ’09

By PlanetLaundry staff | Jul 08, 2009

The U.S. Department of Energy has some good news for coin laundry owners as we head into the second half of 2009: Total natural gas consumption is expected to decline by 2.3 percent in 2009 and then remain unchanged in 2010, according to the latest report from the DOE’s Energy Information Administration. A tight economy is expected to prolong the current slump in natural gas demand over the coming months, led by an 8.2 percent drop among industrial users in 2009.

Although consumption is expected to fall in the residential and commercial sectors as well this year, competitive natural gas prices relative to coal are projected to lead to a 2.4 percent boost in electric power sector consumption in 2009. In addition, slight consumption increases in the residential, commercial and industrial sectors next year are expected to result from the projected economic recovery.

In turn, total U.S. marketed natural gas production is expected to decline by 0.6 percent in 2009 and by 2.9 percent in 2010, the EIA reports. As both consumption and prices have waned amid the recent economic downturn, natural gas producers have responded with a dramatic reduction in drilling.

According to Baker Hughes, total working natural gas rigs are now down 57 percent since September 2008. The resulting production decline from the drop in rigs is expected to occur almost exclusively in the “Lower-48 non-Gulf of Mexico region” during the second half of this year.

However, while the decrease in drilling rigs is expected to result in lower natural gas production in 2010, recent improvements in drilling technology have lowered costs, reduced drilling time and increased well productivity. These factors should improve the responsiveness of producers to changes in demand.

And the bottom line for laundry owners? As for natural gas prices, the Henry Hub spot price averaged $3.91 per Mcf in June, which was five cents below the average spot price in May. Prices continue to reflect the disparity between the weak demand and a strong supply.

But, despite low prices, natural gas marketed production in the Lower-48 non-GOM increased by 1.9 Bcf/d (3.7 percent) on a year-over-year basis in April, the most current available monthly data. Although U.S. natural gas production is projected to decline over the coming months, historically high storage levels and limits to storage capacity may cause prices to decline further this fall.

Prices are expected to rebound in early 2010 as the market balance tightens. However, rising prices are expected to be tempered by improvements in the productive capacity of domestic onshore supply sources.

The Henry Hub spot price is expected to average $4.22 per Mcf in 2009 and $5.93 per Mcf in 2010.