A brutally cold winter has made natural gas the new black, firing up demand and sending prices to a four-year high last week at $5.74. The sharp rally has upended assumptions that a surplus of supplies would provide inexpensive energy for decades to come, and that the U.S. could even afford to ship some of it abroad.
For years, the market has grown accustomed to the idea that natural gas—a product of the U.S. shale revolution—is both abundant and inexpensive. The breakneck pace of U.S. natgas production, which the Energy Information Administration recently predicted would jump by 56 percent from 2012 to 2040, had helped depress prices.
At least for the moment, analysts expect the current price spike to be temporary: Goldman Sachs recently raised its natgas forecast for 2014 in response to the rally, but expects prices to top out at $4.50. Elsewhere, Bank of America-Merrill Lynch expects prices to fall back below $4 within the next two months.
Still, others say the natural gas spike could last longer than expected, because a prolonged cold spell has delayed the replenishment of depleted inventories. The latest report from the EIA showed natural gas stockpiles fell by 262 billion cubic feet (bcf), having shed 40 percent since November alone as the weather turned frigid.Data points:
- prolonged winter will prolong the shortage; less time to replenish the tanks over the summer
- the situation will exacerbate if there is a hot summer
- farmers in autumn (2014) will be first to notice
- March natural gas futures might trade at a premium to April contracts
- relatively inexpensive in US ($4); Europe ($10+); Asia ($15+)
- at the time the article was written, DOE had approved three new LNG export facilities in 2013
- DOE just approved a fourth, Sempra, approved yesterday
- DOE weighing 21 more requests
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