US natural gas: a long-term bull market

US natural gas prices have hovered around the $4 per million British thermal units (mbtu) mark for the past few years now. They’ve slipped back in recent months – summer demand for air conditioning was lower than usual, while supply grew by 4% compared to last year, as producers pumped out more gas.

But in the long-term, expect prices to rise. Hydraulic fracturing (‘fracking’) technology has made it possible to extract gas from once-inaccessible rock formations, giving supplies a huge boost. But demand should gradually catch up.

Fossil fuels are set to dominate the energy market for years to come, accounting for 75% of global energy supply in 2035, according to the International Energy Agency. Gas should gain most from this trend.

It is the cleanest-burning fossil fuel, and today’s low prices should encourage households and industries to switch to it, spurred partly by more stringent environmental regulations. There is a growing market for natural gas-powered vehicles, which currently account for around 1% of cars in the US.

There is also plenty of scope for the US to export more natural gas to parts of the world where gas is more expensive. Capital Economics reckons prices will have risen to $6 per mbtu by the end of 2016.

Merryn

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