US natural gas supplies, primarily from wet gas plays, will continue to outpace any increase in demand in 2015, Bernstein Research said Wednesday as it cut its 2015 price forecast 11% to $4/Mcf from $4.50/Mcf.
Bernstein said gas production associated with oil and liquids drilling will continue to stay at its frantic pace until oil prices move lower and meanwhile, the associated gas from oily and wet plays is outstripping any demand for the commodity.
Bernstein's model says gas production will increase a net 3 Bcf/d in 2015 while demand will only grow 1.2 Bcf/d, primarily from the retirement of coal power plants.
In the first half of 2014, gas production grew 4.1 Bcf/d over the same period last year, Bernstein said.
With the bulk of new gas coming from the wet Marcellus and Utica shales, the Eagle Ford shale, and the Permian Basin, "the proportion of gas coming from dry gas plays has dropped to a low of 57% of unconventional gas production, from a high of 86% in 2010. This indicates that if oil price stays strong, we could see growing gas production even as gas prices fall."
Bernstein offered a ray of hope for gas producers but it's at least three years away.
"There is a light at the end of the tunnel: LNG exports begin to grow in earnest beyond 2017 and reach 6 Bcf/d by 2020," Bernstein said in a note clients. "If the Environmental Protection Agency's proposed carbon dioxide regulations come into effect, an incremental 7 Bcf/d of gas demand would be required by 2020."
"The biggest risk to our outlook is a drop in oil price that would force E&Ps to reduce drilling and limit gas supply growth over the next 24 months," Bernstein said. Another "one sigma" winter could also create a temporary lift to pricing.
"Weather is ultimately transitory and less of a worry," Bernstein said, "but supply growth is persistent and was stronger than we forecast."
Analysts have been growing increasingly pessimistic about natural gas prices as the summer ends without providing significant cooling demand. Investment bank Raymond James Monday cut its 2015 price forecast 18% to $3.65/MMBtu.
