US Natural Gas Prices Unlikely to Rise as Supply Market Balances - ConocoPhillips Analyst

SAN ANTONIO (Sputnik) - Natural gas prices in the United States should not increase considering the plethora of domestic resources available, ConocoPhillips market analyst Matthew Henderson told Sputnik.

"There's still a lot of resources [in the US]: the northeast, the Permian [basin], the Haynesville [shale], there's still a lot of gas in the ground at very low break-evens," Henderson said on the margins of the US-Mexico Natural Gas Forum.

"Going forward there's no argument to be made for higher gas prices... because we do have that resource to tap into so that resource is going to act as a cap on prices."

Henderson predicts that in the next several years the United States will not be in an over-supply market, it will be better balanced going forward.

According to the US Energy Information Administration (EIA), natural gas prices fell in most places in the United States and around the world earlier this month. Meanwhile, US supply of natural gas is slightly up as a result of increased production, but consumption is increasing significantly as cooler weather arrives in the United States, the EIA said.

Henderson also pointed out that the number of drilling rigs operating in the United States goes up when demand increases, but that has not happened recently.

"A lot of that is just producers trying to - because they were running so hot and focused on growth and they were spending so much, 120 to 130 percent of the cash flow at a time period - I think producers are just coming to the realization that's not sustainable and so we have a lot of focus from producers on maintaining and repairing the balance sheets," Henderson said.

In general, Henderson said, the market coming out of this period will be healthier because companies should be on better footing financially.

In addition, Henderson said coal is phasing out in the United States, which may cause more volatility in the gas market for now.

"We've seen a structural decline in coal supply in production here in the US... there's not a lot of capital flowing into that market," Henderson said. "That will continue on, we expect additional coal retirements over the next ten years. It's going to be partly because of renewable requirements, mandates from states, retiring coal plants outside of economics, and then you just have coal plants that are retiring because they're 30 years old or whatever it is."

As the trend continues and balance is lost between the coal and natural gas markets, it will contribute to additional volatility, Henderson added.

Around summer, there should be a better picture of what things will look like over the next couple of years in the gas markets, Henderson said.

Henderson also said renewable energy is creating new opportunities and changing the market dynamics.

"The gas market twenty years from now will look different from what it does now - that doesn't mean it's a bad thing," Henderson said.