Tuesday, December 8, 2009

EIA: Gas Spot Price to be $4.62/Mcf in 2010

The EIA December Short-Term Energy Outlook came out today.  The three big highlights of the report are the 2010 projections:
  1. The average spot price of natural gas will be $4.62/Mcf (about $4.50/MMBtu) 
  2. Natural gas consumption will drop 0.4%
  3. Natural gas production will decrease 3.1%
First, regarding price, the EIA doesn't have a crystal ball. It seems to do a statistical analysis of futures prices to estimate next year's spot price. While that price would be 17% higher than the estimated 2009 average spot price of $3.95/Mcf, it is still fairly low and likely will not lead to much natural gas investment outside of low cost plays.

Second, in terms of consumption, the EIA expects 2009 consumption to drop 1.9% from 2008 and another 0.4% in 2010.  Industrial consumption was way down in 2010, but fuel switching by power plants from coal to natural gas partially offset the loss.  With seasonal price increases and an oversupply of coal, the fuel switching has ceased.  Next year, the EIA expects industrial, residential and commercial consumption to pick back up but power plant consumption to drop.

Last, in terms of production, the EIA estimates that 2009 production was up 3.7%, even with the more than 50% decrease in working rigs.  The projected 2010 production decrease is based more on market-driven issues than quality of supply or depletion issues.

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