How Natural Gas Is Changing Global Energy Market
Never before has natural gas in the U.S. been both so cheap, and abundant.
Natural gas futures have been trading at a decade low, below $2.50 per million BTUs, and government data this week showed inventory levels 45 percent above the 5-year average. Some traders believe the price can go even lower, before it heads higher.
"The industry is realigning. You have low natural gas prices and prices will stay low for awhile," said Kenneth Hersh, CEO of NGP Energy Capital Management. "There's such a surplus in the market and the system right now, so it may take several years to wear that off."
Hersh said the price will move higher—to about $4 per million BTUs—as supply stabilizes and the market goes back to pricing in replacement costs.
The natural gas boom will be a major topic of discussion at the CERA Week energy conference, starting Monday in Houston. Hersh is one of the speakers.
“Where natural gas prices are now kind of resets the economics for the whole energy market place,” said Daniel Yergin, chairman of IHS CERA, the energy research and advisory firm that hosts the conference. He is also CNBC's analyst on global energy.
The rapid growth in natural gas production that has been reshaping North America’s energy landscape, has in a few short years turned the United States into a potential exporter of natural gas from a country on the cusp of becoming a major importer.
"The U.S. is the largest natural gas producer in the world. We now have one of the largest supplies in the world," said Hersh. "We're the third largest oil producer. We're the largest coal supplier. We're not a resource poor country."
The growth in gas production is credited with creating thousands of jobs and could create more, as companies reconsider manufacturing in the U.S., with natural gas as a fuel.
It is also not without controversy, as new extraction methods are increasingly raising environmental concerns. There is currently natural gas production in 32 states, and it has turned states, like Pennsylvania, into major gas producers.
International Energy Agencychief economist Fatih Birol recently said the world has America to thank for this “golden age” of gas, where productive natural gas finds are now being made from China to the Middle East, all because of technology pioneered in the U.S.
Hydraulic fracturing, or “fracking,” and horizontal drilling are a big reason for the boom.
Fracking, or the use of highly pressurized water, sand and chemicals to break apart rock, releasing the gas inside, has resulted in a surge in natural gas supply. Some estimates put that supply at 100 years worth, while just a few years ago, the U.S. was on the road to becoming a major importer of liquefied natural gas from the Middle East.