Fuel switching seen as key to long term gas demand growth

Monday, June 11, 2012

Fuel switching in the power sector offers the most viable long-term solution for the natural gas sector as it works to rebalance supply and demand in the market, executives said Monday.

Andrew Bradford, director of origination and business development at Platts unit Bentek Energy, agreed that fuel switching would drive much of the gas demand in the near term.

"Power generation is a great shining hope for demand," Bradford said.

Bradford, meanwhile, said he expects gas prices to remain in the $2.50-$5 range through 2017. In hedging his own outlooks, he questioned whether Bentek was seeing the whole picture on the demand side.

"Is demand much more aggressive than what we're seeing? There are a lot of gray areas. It's tricky analyzing demand," he said.

Regardless, Bradford said it was hard to see gas prices going to $8/MMBtu by 2015.

Despite the multitude of potential drivers for gas demand, Bradford said much of the US is poised to remain long on gas for the next five years. The Northeast, in particular, could begin exporting supplies to other regions on a seasonal basis by 2015, he said.

"Northeast production is really pushing on inbound flows as well as storage withdrawals," Bradford said, noting the region ended the withdrawal season net long 3.8 Bcf/d. "Northeast production is greater than all inbound flows combined."

Bradford said Bentek estimates that even cutting the number of rigs by some 50% from peak levels would still result in 3 Bcf/d of growth in the dry areas of the Marcellus Shale.

"Northeast demand growth will continue to lag production through 2017," Bradford said.

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