Low Energy Prices Forecast to Continue, Holding Down New Investments

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--U.S. energy prices will remain at their current soft levels, which will likely postpone and discourage investment in utility infrastructure and coal and gas development, a group of energy experts recently predicted. "Natural gas prices will remain low because industrial demand has been soft and storage rates have been high," said Neil Gamson, an economist with the Energy Information Administration (EIA), the data and statistical arm of the U.S. Department of Energy. As of mid-June, U.S. natural-gas storage levels are 32% higher than they were last June and 23% higher than the five-year average, according to an EIA estimate.

"A good bit of the industrial demand for gas is gone and is not coming back," added industry consultant Tom Woods, noting the recent closure of numerous manufacturing sites, victims of the U.S. recession. "There will be increased gas-on-gas competition, aggravated by the availability of relatively cheap liquefied natural gas. In this industry, supply drives demand, and right now we have too much supply chasing too little demand."

According to data from Industrial Info's North American Industrial Database, 933 industrial plants have closed down in the U.S. since the beginning of 2008, including 629 in 2008 and 303 so far in 2009. The majority of these facilities used natural gas as either a feedstock or as fuel.

Click on image at right for a breakdown by industry of U.S. plant closures since January 2008.

Woods, Gamson and other energy experts spoke at a June 16 web conference titled, "Answering the $100 billion question: Where are coal, gas, and electricity prices Headed?" Historic price spikes for gas and coal pushed U.S. utility spending on those fuels above $100 billion last year, according to data from the Edison Electric Institute (Washington, D.C.) and the American Gas Association (Washington, D.C.). The web conference was sponsored by Electric Utilities Corporation Incorporated (EUCI), a Denver-based energy events company

Utility-spending on coal and gas is likely to be sharply lower in 2009, as the effects of utility price increases and the U.S. recession combine to dampen consumer demand for electricity and natural gas. The EIA's Gamson said that electricity prices rose 8% in the first quarter for U.S. residential customers, and overall electric usage fell by about 4% during the quarter, compared to the same quarter of the previous year.

Energy consultant Andy Weissman agreed with the generally downbeat forecasts, at least for the short term: U.S. gas and coal producers are in a "severe over-supply situation, and will remain that way for the next 12 to 24 months. In the short term, that's good news for energy buyers and consumers and bad news for energy producers and investors."

Cash prices for natural gas won't move much from their current price of about $4 per million British thermal units by the end 2009, the experts agreed.

But Weissman, publisher of Energy Business Watch, said this short-term over-supply could lead to a "severe, weather-driven, overcorrection, where prices hit historic peaks," as was the case in mid-2008. But none of the speakers deemed that scenario very likely. Consultant Woods commented: "There is very limited near-term support for gas-price recovery without a major singular event," such as a hurricane in the Gulf of Mexico or a dramatic recovery of the U.S. economy.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.