Near-record natural gas demand from U.S. electricity generators is driving prices back toward $4 for the first time since September 2011 even as output climbs to an all-time high for the sixth straight year.
Producers including Duke Energy, NRG Energy, Southern Co. and Dynegy say they plan to run their gas-fired units this year at close to the top rates of 2012.Plants burned 24.96 billion cubic feet of gas a day last year, up 4.21 billion from a year earlier and a bigger gain than in the five previous years combined. Gas futures have nearly doubled since trading at a 10-year low in April as utilities switched from coal and unusually hot weather spurred cooling demand.Power plant consumption of gas may come close to, or even exceed, 2012 levels as the fuel retains a cost advantage over coal in the eastern U.S. and the economy grows, according to BNP Paribas and ConocoPhillips. That contrasts with an Energy Information Administration projection that demand for gas will slide 7.5 percent this year."Natural gas demand for power is going to be higher than last year," said Jason Schenker, president of Prestige Economics in Austin. "I am more bullish than the EIA because I have a more robust outlook on growth. This year, we might see the highest level of per capita gross domestic product since 2007."Gas futures averaged $5.93 per million British thermal units in the five years through 2011, before prices collapsed to a decade-low $1.902 in April.Gas for April delivery gained 13 cents to $3.81 per million Btu on Thursday on the New York Mercantile Exchange. Coal on the NYMEX has gained 2.2 percent since gas dropped to the 10-year low in April.Prices will rise to $3.95 by the fourth quarter, according to the median of 20 analyst estimates compiled by Bloomberg News. Morgan Stanley predicts that futures may top $4 this summer after colder weather in the first quarter helped reduce a supply glut, according to a March 4 note to clients from Adam Longson, a New York-based analyst."The biggest fundamental factor this year is probably power generation," said Kent Bayazitoglu, an analyst at Gelber & Associates in Houston. "A lot of power generators have become accustomed to having relatively cheap gas, and some of the coal generation that went away isn't coming back."Prices have been held down by a glut of gas from shale plays including the Barnett Shale. But the low prices have led to a big pullback in drilling, particularly in the Barnett, as operators moved rigs to oil fields such as the Bakken in North Dakota and the Eagle Ford in South Texas.U.S. marketed gas production will climb 0.7 percent this year to 69.6 billion cubic feet a day, setting a record for the sixth straight year, according to the EIA.Williams Co. CEO Alan Armstrong said ample stockpiles and production from the Marcellus Shale continue to drive demand from power plants served by its Transco pipeline in the Northeast.Have more to add? News tip? Tell us
