The news about natural gas in the US has been a little more positive of late.
In September traders began to feel confident that natural gas would not overflow the storage capacity, boosted by news that there was still a few hundred billion cubic feet available, helping prices out of the $3-$4 range. In mid-October supplies still stood more than 150bn cubic feet short of estimated capacity.
This is all welcome news for the gas industry, much of which has been furiously drilling for shale gas despite the downturn in prices. Gas, many now believe, is the power source of the future: cleaner than coal and apparently far more abundant than was once thought.
But Barclays Capital analysts remain sceptical that we are heading for a natural gas power revolution, at least before 2012:
To a significant degree, as goes the power industry so goes the demand trajectory for gas. Just when the gas industry has unveiled significant supply growth potential, the power sector looks like it wants to cut gas from its diet by adding a significant amount of non-gas power plant capacity that follows the hit already taken from a power demand pullback.
The BarCap analysts in August pointed out that natural gas demand growth was closely linked to power demand, which is not doing so well this year. They forecast half of the non-weather related demand decline to recover in 2010, and the other half in 2011.
This yields power demand growth of 3% in 2010, and growth of 1.7% in 2011 (as shown in Figure 3). A higher or lower economic growth rate would automatically translate to a higher or lower power demand growth rate. Add to the mix a raft of efficiency programs that are likely to dampen the growth trajectory.
So, how about gas in particular? Growth, they say, is likely to be supplanted by both coal and renewables.