Natural gas prices remain high by historical standards. The February 2004 NYMEX futures contract has been trading at levels over $7 per MMBtu, higher than the actual front month settlement price for all but two months over the last 10 years. 

 	
 As we look forward, are prices likely to stay high or drop down to more normal historic levels? In asking that question, it should be noted that the average gas price over the past five years is $3.85 per MMBtu. 
 	
 Predicting natural gas prices is fraught with danger, particularly with the chaos that has entered into the energy marketplace over the past few years. The "chaos factors" include, for example, the Iraq war and increased concerns regarding security of supply, the demise of the four largest natural gas marketers (Enron, Dynegy, Mirant, Aquila) and the unprecedented increase in natural gas fired electric generation. All of these factors tend to support high and volatile natural gas prices. However, we do see some glimmers of hope that natural gas prices may soften and possibly return to more normal historic levels. 
 	
 First, over the past four years (through 2002), U.S. natural gas reserves have increased. That means for each of those years, more gas was found than was produced and used. Second, natural gas drilling activity remains very strong. We have maintained a drilling activity level above the long-term trend line since May 2003. Third, the interstate pipeline industry has been aggressively investing in new pipeline projects to bring natural gas out of prolific drilling areas (i.e. Rockies) that have had insufficient pipeline capacity. Fourth, several projects are in various stages of development to bring significant volumes of liquefied natural gas (LNG) from the Caribbean and Middle East to the U.S. Finally, some sectors of the economy are permanently reducing natural gas usage. For example, several domestic ammonia fertilizer plants, which use a considerable amount of natural gas, have shut down and the production is being replaced by imports.
 	
 What's the bottom line? Price will remain very volatile with strong factors supporting relatively high prices; however, the market appears to be responding to these high prices by increasing supply and reducing demand. The key to managing price exposure will be to hedge when prices are below the long-term trend line and have the discipline to stay out of the market when prices are above the long-term trend line. Incidentally, prices are currently above the long-term trend line. EP

Healthy reserves, active drilling, new investment offer 'glimmers of hope'

Upcoming Events

2025 International Fuel Ethanol Workshop & Expo

Carbon Capture & Storage Summit

Sustainable Fuels Summit: Sustainable Aviation Fuel & Renewable Diesel

North American SAF Conference & Expo

Healthy reserves, active drilling, new investment offer 'glimmers of hope'.css-7jxktu{position:absolute;bottom:0px;left:0px;right:0px;height:3px;border-radius:3px;background-color:var(--chakra-colors-brandBlack);}

Upcoming Events

2025 International Fuel Ethanol Workshop & Expo

Carbon Capture & Storage Summit

Sustainable Fuels Summit: Sustainable Aviation Fuel & Renewable Diesel

North American SAF Conference & Expo

Healthy reserves, active drilling, new investment offer 'glimmers of hope'