Over the last few years, North American natural gas markets have been dramatically impacted by increased production due to shale gas which in turn initially caused natural gas prices to plummet to historical lows. Today natural gas is experiencing an increase in price levels compared to a year ago when the natural gas production glut from shale (made possible by the advances in horizontal drilling/fracking) had caused spot prices to hover around the $2 mark, even dipping below that at times. The oversupply was caused by a multitude of factors including lease/drilling commitments, lagging investment in pipeline infrastructure and the electric generation sector’s inability to keep up with the oversupply as the construction of gas fired plants coupled with coal plant retirements (as part of the overall switch from coal to gas) are still under way.
This switch would be accelerated even more if environmental regulations with regards to carbon emissions were promulgated, making it extremely difficult to build compliant coal fired units (use of natural gas for electricity generation is up to 40% from about 20% a little over 5 years ago). This glut is expected to ease and cause natural gas prices (which have been more tied to coal prices recently because of the direct fuel competition) to increase further going forward, as they have in the past year, with new demand outlets such as LNG exports and potential in the railroad and heavy truck transportation sector.
Greenmont Energy adopts an integrated approach to all consulting and modeling projects. We offer a solid and innovative understanding of how all energy markets operate individually as well as how they affect each other (especially with regards to the electric sector where energy sources combine and compete during the dispatch process). We have worked on numerous consulting engagements involving shale gas production level scenario analysis with regards to wholesale and retail electricity prices, coal plant retirements/conversions, and new gas fired plant capacity. We are constantly updating our natural gas related assumptions with regards to our cost supply curves, gas basis differentials to the Henry Hub, export levels and production estimates for the various shale gas plays.
