Monday, April 16, 2012

Please, No Rubbernecking

What ever you do, do not look at the right side of the graph below, especially not at the blue and red lines that seem to become a purple line.

I'm glad you didn't see that chart from the EIA's April 2012 Short Term Energy Outlook, which projects that the price of natural gas will not get above $4/MMBtu through the end of 2013.  This is not particularly new news as many analysts make similar projections, but it is not a  happy thing for gas fans to see.

Bottom line:  natural gas demand was up 4.2% last year (but only because gas prices were so cheap that utilities switched gas for coal in many instances), but domestic production was up by an unprecedented 7.9%. That imbalance is a key ingredient to the current supply glut that is causing "downward pressure" on gas prices.

The good news is that the EIA projects production to more or less level off in 2012, but the bad news is that result will come only after curtailments and a major decrease in gas rig count.  Normally that would equalize the supply issue quickly, but in this new world of Big Shale and high oil prices, the hunt for high priced oil and liquids is yielding lots of gas, and many of the gas wells still being drilled are producing big results now that lots of rigs are not tied up nailing down sometimes marginal leases by production.

Again, none of this is particularly new news, but it is hard not to rubberneck when you see the data again and again.

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