Upcoming winter will test balance between supply and demand for natural gas


With utilities burning more natural gas, demand could reach unexpected peaks during the winter.

Residents and businesses throughout the United States have already started to experience wintry conditions, with falling temperatures and light snowfall seen in several regions.

AccuWeather Senior Meteorologist Dale Mohler explained that there was a "sharp change to colder weather" in recent weeks, with the Northeast being the most prominently affected region. In mid-November, Boston, New York City and Philadelphia saw their first snow of the season, and temperatures have remained low since then, with additional flurries taking place in some areas.

As the days become shorter and colder and Americans start to spend more time indoors, demand for heat and electricity will increase rapidly. Because many areas have been turning to natural gas to meet these needs, winter could lead to closer scrutiny of whether or not current production is capable of meeting demand.

Natural gas playing an unprecedented role in power generation in northeastern states

According to Pennsylvania gubernatorial candidate John Hanger, natural gas power plants now generate almost 50 percent of the electricity used in New York and New England, and that figure has been rising rapidly. As recently as 2001, gas-fired facilities provided only about 20 percent of the region's electrical supply.

Hanger suggested that the use of natural gas will continue to increase as states decommission older facilities that use other fuel sources and replace them with relatively clean gas-fired utilities. For instance, Massachusetts is on track to close its largest coal plant in the next few years, while Vermont is shutting down an aging nuclear facility.

When it comes to heat, it is not only the Northeast that seems to have embraced gas. The U.S. Census Bureau's 2012 American Community Survey found that roughly half of American households primarily rely on natural gas for heat during the winter. This figure has been rising fast in recent years and an unexpected crunch on the supply side could cause prices to escalate quickly.

The U.S. Energy Information Administration (EIA) reported that as the cold front described by Mohler was moving through the densely populated Northeast, total consumption of natural gas jumped by 15.6 percent from the previous week. The agency specifically attributed this rise to residential and commercial heating and electrical needs related to the winter weather. Gas prices shot up in response.

Looking forward, the EIA predicted that gas prices would rise by an average of about 13 percent during the winter, with some disparity between regions and the Northeast expected to see the largest increases.

Alongside domestic needs come lucrative export opportunities

As this blog has discussed previously, the relative abundance of energy resources that the United States is experiencing as a result of the so-called shale revolution has created a lot of excitement around the idea of oil and gas exports. Although this activity is tightly regulated, federal officials have started to approve permits to export liquefied natural gas (LNG) to countries outside of international free-trade agreements and are considering more applications.

Europe could have a particularly strong need for natural gas imports, due to its tenuous relationship with its primary supplier: Russia. Political disputes centered on the integration of former Soviet countries into the European Union's economy have led to pipeline shutdowns that left the continent's heating and electrical utilities scrambling to secure adequate supplies in the past. Although a major risk was recently alleviated when Ukraine — long a key transshipment point for gas flowing from Russia to Europe — withdrew from free-trade negotiations with the EU, stakeholders continue to search for more secure sources of gas.

Japan has an even more pressing need for oil and gas from abroad. The island nation, which has sharply limited domestic reserves, has been struggling to shift away from nuclear power since the disastrous 2011 Fukushima-Daiichi meltdown. Rapid growth in China and other emerging economies has also caused these nations to increase their use of natural gas, which will keep demand high in global energy markets.

How can producers capitalize on this situation?

With these short- and long-term trends pushing up demand for natural gas, producers should be well positioned to benefit from higher prices. This will be a welcome development after years of seeing rapid production growth drive down the market value of gas.

Implementing new technologies, such as the hydraulic jet pump, can aid well operators in making the most of changing economic conditions. This solution is valued for the versatility it provides. The unit can be deployed in straight, horizontal or deviated wells and with no downhole moving parts, it has minimal maintenance needs.

The jet pump can even be successfully deployed at sites where problems with the completion of well casing would reduce the effectiveness of other solutions.