The structural tightening of balances that is taking place this year in US natural gas sector is poised to persist into 2014. Yet, the recovery of prices will be only modest, in Barclays' view.“We expect natural gas markets to remain range bound, with prices seeking a delicate balance between coal-to-gas displacement needs and drilling economics.” the Bank said in a report. Barclays expects continued declines in net imports of natural gas and strong growth of industrial demand.
The need for coal-to-gas displacement is reduced, yet it remains a prominent feature of the markets in 2014.
This allows for prices to recover, but only marginally, as they need to maintain a balance between coal-to-gas displacement requirements and drilling economics. A modest recovery of prices leads to an uptick in drilling, which arrests production declines and puts lower-48 dry gas output on a modest upward trajectory y/y.
“We expect natural gas prices to average $4.10 in 2014.” the Bank said.
Also, 2015 is set to see the unravelling of several dynamics that will cause balances to tighten further, and likely at a greater pace than the tightening we expect in 2014.
Yet, with coal-to-gas displacement estimated at a hefty 2.3 Bcf/d in 2014, balances are unlikely to tighten sufficiently to take gas out of the coal stack altogether.
This means that, once again, natural gas prices will be bound by coal displacement and drilling economics in 2015, albeit at higher levels than Barclays' 2014 price forecast.
Source: Barclays