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Natural gas should stay cheap for a long time

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 relatively low for at least the next 20 years, with a long-term annual average price of $4 to $5 per million Btu, a study by IHS says.

The study, released in January, details an anticipated increase in demand from residential and commercial users and from exports.

Even with new demand, the quantity of U.S. gas is so vast because of unconventional drilling techniques that average Henry Hub (based in Louisiana, the delivery point for physical natural gas traded in the Nymex futures market) prices should not rise dramatically from the $4 to $5 range, though they could fluctuate.

Henry Hub prices averaged $4.24 per million British thermal units in December. They 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 tcf of gas that can be recovered for $4 or less."

(Read more: Libya's oil output goes from bad to worse)

Though there could be spikes, of course, the average price should stay low, she said. There was one such spike this month, as natural gas futures surged over $6 per million Btu on cold weather and supply concerns.

Natural gas futures, for April delivery, were trading Friday just over $4.50 per million Btus on the Nymex.

The projection is a long-term average, Beale said, and higher demand in some years could put pressure on prices—such as in 2015-16, when a large number of coal-powered plants are slated to 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."

(Read more: Watch oil prices, they may be about to pop)

Beale does not foresee U.S. gas prices rising to levels elsewhere in the world when it begins exporting. That is expected in 2019. Prices in Asia and elsewhere can be in double digits, and they are linked to oil prices.

Challenges to natural gas use include conversion costs and regulations that can discourage economical natural gas projects, according to the study.

It also looks at opportunities 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.

(Read more: U.S. goes easier on nat gas than pipelines)

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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