Natural gas prices expected to remain stable, says expert

The price of natural gas in the US is expected to stay relatively low and stable, says Norton Rose Fulbright partner for global consultants John Mauel.

He told delegates at the South Africa: Gas Options conference, in Cape Town, this week that the volatility in the US gas to oil price ratio suggested a period of divergence over the long term, but with abundant gas reserves, prices were likely to remain stable.

US natural gas prices averaged $2.61 per million British thermal units in 2015.

The US natural gas industry has grown exponentially over the past few years and is set to expand further when five projects that are under construction, come on stream. The development will make the US the third-largest producer of liquefied natural gas (LNG) after Australia and Qatar.

Mauel said this was good timing for South Africa as the country explored the prospects of an expanded gas industry.

“When demand catches up with supply, the US will have a whole wave of projects waiting in the wings.”

He said buyers of US LNG had the advantage of flexibility within sales agreements, which could benefit South Africa.

“LNG cancellation and quantity flexibility should help suppliers align with South Africa’s power load and dispatch requirements.”

Mauel expects the fundamentals of the US natural gas market will predominate for the next 20 years, based on proven, undeveloped shale gas reserves in the US.

“The US shale gas industry only really began in 2006. We’ve only had eight to ten years of technological improvements. Most people feel that a lot of incremental reserves will be discovered. The question will be whether the global price of oil will increase at a higher rate than US natural gas prices. I [don’t] believe it will.”

Meanwhile, exploration for South Africa’s shale gas reserves may still be a way off.

The Department of Energy’s (DoE’s) preliminary information memorandum on the LNG-to-power programme, says while the potential for indigenous natural gas is considered to be high, it is still hypothetical at this stage.

“It is dependent on large volumes of commercially realisable indigenous gas being discovered, verified and commercialised,” the report said.

The actual scale of the opportunity surrounding shale gas production and supply would only be known once significant drilling and assessment had taken place.

“Such activities are not yet under way and will require a large financial commitment from the licence holders,” the report said.

DoE deputy director-general Ompi Aphane said shale gas was still very much part of the energy department’s indigenous gas option in the Integrated Resource Plan. He said it would be critical in the long run and could play a vital role in complementing the importation of LNG.