With the calendar turning over into a new year, the table is set for several potential shifts in natural gas market dynamics that could have an impact on end users. Market participants have gotten used to a well-supplied situation and generally low pricing, but below are three issues that are indicative of a changing market over the next 12 months and beyond.
Flat to Falling Domestic Production
Natural gas producers in the U.S. sent volumes to market at a record clip in 2015. However, the rapid year-on-year growth that marked 2014 came to a halt, particularly in the second half of the year. The natural gas-directed rig count&mdash;which measures exploration for new wells and can act as a leading indicator of production growth&mdash;fell to a new all-time low south of 200 rigs in the fourth quarter. This is indicative of a market that provides very little price incentive to bring new volumes online. The combination of low prices and limited levels of exploration could set 2016 up to be a flat production year or even the first annual decline since the middle of last decade. This is a factor that could come as a shock to the system for market participants that have gotten used to reliable year-over-year supply growth.
Growing Demand from Power Generators
Along with a new record in domestic production, 2015 also saw record usage of natural gas from the nation&rsquo;s power generation sector. This was due to a combination of the ever-growing natural gas-fired generation capacity, the retirement of coal-fired generation assets, and a price advantage held by natural gas over coal for much of the year. Demand from this sector could be even higher in 2016. The natural gas price environment in the second half of 2015 was similar to the one experienced in the first half of 2012, which happened to be the previous high water mark for natural gas burn from the electric generation sector. This sector stepped up to take advantage of low prices and alleviate a supply glut. From a low south of $2 per MMBtu in the first half of 2012, the prompt-month New York Mercantile Exchange natural gas contract was back well above $3 per MMBtu by the end of the year, thanks in part to the response in demand. Thanks to new buildout and further coal retirements, power generators are even better positioned to ramp up natural gas consumption to help rebalance the market this year.
Exports Continue to Ramp Up
2016 is set to be the year that will push the U.S. closer to being an overall net exporter of natural gas. The nation currently imports between 5 and 6 Bcf per day from Canada &ndash; a volume that has been trending lower for the past decade. Meanwhile, pipelines headed south of the border to Mexico are ramping up exports. The U.S. sent an all-time record of more than 2.5 Bcf per day to Mexico in 2015, with daily volumes above 3.0 Bcf per day at times. Exports to Mexico have historically hovered around 0.5 Bcf per day, so this represents a large shift. These volumes are set to increase again in 2016 as the network of pipelines connecting the two nations continues to add working capacity. Additionally, with exports of liquefied natural gas commencing from Louisiana&rsquo;s Sabine Pass terminal to the tune of 0.5 to 1.0 Bcf per day, 2016 is set to potentially be the lowest year on record for net imports of natural gas into the U.S.&nbsp;
<table border="0" cellspacing="0" cellpadding="0" width="640">
<colgroup><col width="142"></col> <col width="148"></col> <col width="157"></col> <col width="144"></col> <col width="49"></col> </colgroup> 
<tbody>
<tr height="19">
<td class="xl66" colspan="2" width="290" height="19">Natural Gas Prices ($/MMBtu)</td>
<td width="157">&nbsp;</td>
<td width="144">&nbsp;</td>
<td width="49">&nbsp;</td>
</tr>
<tr height="19">
<td height="19">LOCATION</td>
<td class="xl65" align="right">November 24, 2015</td>
<td class="xl65" align="right">September 30, 2015</td>
<td class="xl65" align="right">November 25, 2014</td>
<td>&nbsp;</td>
</tr>
<tr height="19">
<td height="19">NYMEX</td>
<td class="xl67" align="right">2.15</td>
<td class="xl67" align="right">2.52</td>
<td class="xl67" align="right">4.27</td>
<td>&nbsp;</td>
</tr>
<tr height="19">
<td height="19">NNG Ventura</td>
<td class="xl67" align="right">2.28</td>
<td class="xl67" align="right">2.60</td>
<td class="xl67" align="right">4.66</td>
<td>&nbsp;</td>
</tr>
<tr height="19">
<td height="19">Calif. Citygate</td>
<td align="right">2.375</td>
<td class="xl67" align="right">2.83</td>
<td class="xl67" align="right">4.56</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
&nbsp;

The EIA provides information about energy infrastructure in an online interactive map, which in this view, shows natural gas power plants in U.S. states like Minnesota, Wisconsin, Michigan and others.

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2015/11/natural-gas_14484687638048_thumb.JPG

2015/11/natural-gas_14484687638048.JPG

The table is set for several potential shifts in natural gas market dynamics that could impact end users. Market participants have gotten used to a well-supplied situation and generally low prices but the market is changing over the next 12 months. 

Commodities: Three natural gas trends to watch in 2016

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