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Nat gas should stay cheap—for long time: Study

A natural gas well at a fracking site in Washington Township, Pa.
Ty Wright | Bloomberg | Getty Images
A natural gas well at a fracking site in Washington Township, Pa.

Natural gas prices are likely to stay low for at least the next 20 years, with a long term annual average price of $4 to $5 per million Btu, a new study says.

The study by IHS details anticipated increase in demand from residential and commercial users and from exports.

Even with new demand, the quantity of U.S. gas resources is so vast thanks to unconventional drilling techniques that average Henry Hub prices should not rise dramatically from the $4 to $5 range, though they could fluctuate. (Henry Hub, based in Louisiana, is the delivery point for physical natural gas traded in the Nymex futures market.) Henry Hub prices averaged $4.24 per million British thermal units in December, and hit a high above $13 per million Btu in October 2005.

"We now have knowledge and comfort that we have an incredible resource base—technically recoverable resources of 3,000 trillion cubic feet," said Rita Beale, IHS senior director of power, gas, coal and renewables. "We have 900 tcfs of gas that can be recovered for $4 or less."

Natural gas futures were trading Friday at $4.34 per million Btu on the Nymex.

(Read more: Shell shock: Oil giant warns of lower profits)

Beale said the projection is a long term average and that higher demand in some years could mean increased pressure on prices, like in 2015-2016, when a large number of coal-powered plants will shut down.

"There will be more gas in the power grid, and we'll have more chemical plants coming on line," she said in an interview. "We do think we'll have prices rising gently, not spike."

She also does not expect U.S. gas prices to rise to prices elsewhere in the world, once the U.S. begins exporting gas, expected to begin in 2019. Prices in Asia and elsewhere can be in double digits, and they are linked to oil prices.

(Watch this: Natural gas supply sees big drop)

The study says that challenges to natural gas use include conversion costs and regulations that can discourage economical natural gas projects.

The report also looks at the opportunity for natural gas in transportation, now in its infancy, and notes that never before has oil's dominance in vehicles been challenged by such low gas prices.

For instance, retail gasoline and diesel prices are expected to be double the cost of equivalent natural gas.

Thanks to cheaper supply from shale gas production, projects are already underway to convert to natural gas.

—By CNBC's Patti Domm. Follow her on Twitter @pattidomm.

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  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

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