An article dated February 3 – click here – titled ‘Natural Gas to Strengthen Position as Hydrocarbon of Choice’ says Oxford Analytica (click here) expects natural gas to strengthen its position as the hydrocarbon of choice, even though the international economic slowdown has shaken the outlook for gas markets.  The article:

•    says until 2008 it appeared future NG demand would grow strongly for the following reasons (1) Gas has relatively low emissions compared with coal, meaning gas is a less risky investment in terms of future emissions legislation, (2)  Gas as a replacement for oil remains a cheaper option, (3)  rejuvenation of the liquefied natural gas (LNG) industry makes gas more widely available and the diversification of gas suppliers enhanced the fuel’s attractiveness as a means of increasing security of energy supply, and (4) the power sector has led the increase in demand for gas reflecting the evolution of combined cycle gas turbine technology.

•    says the outlook for gas has changed, at least in the short term given (1) Europe’s economic slowdown, (2) Asian industrial demand is falling, and (3) in the U.S. the gas market is experiencing strong supply growth on the one hand, and declining demand on the other.

•    concludes that while falling industrial demand for gas will cause prices to fall, those lower prices will also consolidate natural gas’s position as the hydrocarbon fuel of choice, and that lower prices will also spur the development of LNG regasification capacity on ‘security of supply grounds’.

Last evening I spoke with the President of a Calgary based gas E&P about near-term gas prices.  He told me as best he knew, while NG prices are very low today (futures are U.S.$4.55 this morning) compared with mid-2008 prices north of U.S.$13.50 last July, most gas analysts were forecasting even lower NG prices by this summer driven largely by continued reduced industrial usage and increasing U.S. supply – see article in today’s Calgary Herald – click here.  He also told me he thought the analysts as a group were overreacting in their pricing views.  That said, based on where I think the U.S. and world economies are headed in the next few months, I have little doubt that NG prices will remain depressed in the near term and perhaps longer.

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