How natural gas is withstanding the energy market collapse

[Tom Kirkman + 8,860]

Looks like Covid panic lockdowns won't kill off demand for natural gas.  Natural gas remains a key component of generating electricity.  And demand for electricity is not going to go away.

How natural gas is withstanding the energy market collapse

Natural gas is withstanding the coronavirus-fueled economic crash in a way that its closely associated relative, oil, isn’t.

Oil prices have reached record lows, with the U.S. benchmark oil price briefly dropping below zero last month after trading at around $60 per barrel at the start of 2020.

The U.S. natural gas price, meanwhile, is stable, staying below $2 per million British thermal units, or MMBtu, a historically low level it has been hovering at for a while due to a glut produced from the shale boom.

Oil producers are shutting in their wells, prompting tens of thousands of layoffs, because the pace of the price collapse was so sudden, caused mostly by the fact that the pandemic has crushed demand for transportation fuels made with oil, as people forgo driving and flying.

“The negative impact on demand in gas markets is not as significant as it is with oil because it’s not being driven by transportation,” said Dustin Meyer, director of market development at the American Petroleum Institute, the largest U.S. oil and gas lobbying group.

U.S. natural gas production, by contrast, has remained steady as people stuck at home depend on it for power and heat. Because it’s been so cheap for so long, natural gas in recent years passed coal as the most used fuel for electricity, at 38% of the mix in 2019.

While some important uses for gas are falling, without the need to power or heat large office spaces and some nonessential manufacturing facilities, demand has picked up in other places, such as in feedstock for plastics used to make key health equipment.

“Instead of seeing a very low price market or negative pricing like we did with oil, you are seeing something that looks like price stability or even resilience with natural gas because its primary end use in this country hasn't changed all that much,” said Kevin Book, managing director of the research group ClearView Energy. “Most of America doesn't understand how much of its electric power comes from natural gas, and the masks, gloves, and gowns they are so focused on are also coming from natural gas.”

Natural gas still faces some near-term and long-term challenges.  ...

 

... Prices in Europe and Asia also collapsed to record levels during the mild winter.

Those low prices could enable Asian countries such as South Korea and China that have been slower to break from coal to make the switch to cleaner-burning natural gas, said Meyer of API.

“Coming out of this pandemic, it will give a lot of countries for the first time the opportunity to look at natural gas as a viable component of their longer-term energy future,” Meyer said.

Natural gas consumption in electricity should pick up relatively quickly once offices and stores open, whereas transportation demand could still lag since people will only drive and fly when they are comfortable doing so.

“Electricity demand is clearly going to come back more strongly than transportation demand,” said Paul Bledsoe, an adviser at the Progressive Policy Institute who was a climate adviser under former President Bill Clinton. “So, the outlook for gas is much better than for oil in the near term.”  ...