Some oil and gas industry operators are still bullish on natural gas in the long term despite current low prices and expect this commodity to increase its share of total energy demand over the next few decades. This share gain will be driven by abundant supply, low cost of development and environmental regulations that support the use of natural gas over other fossil fuel alternatives.
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2012 Energy Perspectives
Statoil (NYSE:STO) recently published the 2012 edition of Energy Perspectives, an annual publication that provides a long term outlook on the supply and demand for energy along with an analysis of important economic drivers in these markets.
Statoil predicts that overall demand for energy will grow at an annual rate of 1.1% through 2040, with demand for natural gas growing at a 1.6% annual rate over that time period. This will increase this commodity's share of overall energy demand to 24.4% in 2040, up from the current share of 21.3%.
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Other fossil fuels will also see growth, but at a lower rate, with demand for coal and crude oil increasing at an annual rate of only 0.4% through 2040.
Statoil also believes that current low prices for natural gas in the United States are not sustainable and predicts a moderate recovery in the medium term. This recovery will be led lower supply due to a reduction in shale gas drilling in areas where the current price makes drilling uneconomic. The company cites as evidence the drop in the natural gas rig count from above 1600 in late 2008 to the May 2012 level of 594 rigs.
Natural Gas Demand
Demand for natural gas will also increase as power operators switch to the use of this commodity for power generation. This trend is expected to intensify if proposed environmental regulations make some coal generated power plants uneconomic.
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Encana (NYSE:ECA), which is a natural gas company with operations in both the United States and Canada, examined the natural gas forward curve and estimates that demand for the commodity will increase by 4.1 billion cubic feet per day from July to December 2013.
American Electric Power (NYSE:AEP), which is one of the nation's largest is planning to close five coal fired power generation plants as part of a shift to natural gas generated power.
BP (NYSE:BP) also published its own energy outlook and in the 2012 edition of Energy Outlook 2030 predicted that energy demand will at an even faster rate of 1.6% through 2030. Demand for natural gas will grow at a 2% annual rate and increase its share of total energy demand to 25.9% in 2030, up from 21.8% in 1990.
SEE: Oil And Gas Industry Primer
The Bottom Line
Although many investors may have given up on natural gas and sold off gassy exploration and production stocks over the last year, many in the energy industry believe that this commodity has a positive future.
At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.