Balancing Supply and Demand

In early 2012, Simmons & Co. stated that supply of natural gas exceeded demand. But according to the International Energy Agency, this will be changing dramatically in the next four years, due to the increase of natural gas production as a result of higher prices.

Thanks to the low cost and economic efficiencies in relation to alternative fuel sources, industrial demand is forecasted to increase and overtake coal by 2025. As well, expanded infrastructure facilitates getting the natural gas to the market. Therefore, a formerly stabilized production schedule is forecasted to shift back into high gear to meet the forecasted increased demand and correct the increasing price.

In the past few years, we’ve seen an oversupply in natural gas resulting in full storage. Given that condition, prices were at a level that made it uneconomic to drill, except on the Marcellus Shale. Production companies cut back accordingly.

The growth in demand, forecasted at 1.7 billion cubic feet per day, is driven by industrial, not consumer demand.

Does This Mean Too Much Natural Gas?

The IEA report indicates that increasing prices will drive the production levels to balance the price. However, some feel this might create a glut, or an excessive supply in the natural gas market, and countries like Canada and Australia are scurrying to export their product.

CNBC reports no fear whatsoever of a natural gas glut in it’s article, “Natural Gas Supply Glut? Don’t Count on It..” Jason Bordoff, director of Columbia University’s Center on Global Energy Policy explained, “new projects (will) come online in a few years, and we will need that increased capacity to meet rapidly rising demand in Asian markets…”

Nationwide Benefits

The United States is well-positioned to benefit significantly with this turn of events as demand inevitably increases because of the abundant supply.

Countries outside the U.S. have far more restrictive laws when it comes to resource development. Specifically, Japan is the world’s largest importer of natural gas, having imported 7 million tons in April.

Domestic industries who use natural gas, such as fertilizer manufacturers, suffered 10 to 15 years ago during the period of demand destruction. Thanks to increased production and better prices, fertilizer, which was produced overseas in 2008 due to cost issues, can now be brought back to the United States, reopening existing fertilizer plants, and creating jobs.

Of course, with increase production comes ramifications for liquid natural gas stations and transportation vehicles who see significant opportunity to meet new demands. We’ll discuss this in more detail next.