American Oil and Gas Reporter - January 2020 - 39

Special Report: Outlook 2020

Gas Price Predictions
That actually puts Morgan Stanley toward the top of analysts'
2020 natural gas price projections.
Raymond James is projecting $2.30, Narra reports. "Despite
increases in demand, we still see a lot of supply growth in
2020," he explains.
Platts predicts Henry Hub gas prices will average $2.42 an
MMBtu this year, commenting, "Natural gas prices will be
forced to stay in a range that will support a continual rise in the
dispatch of U.S LNG cargoes."
An article published by Oilprice.com quotes Bank of America
Merrill Lynch blaming the bust in coal markets for keeping a
lid on gas prices. "With the implosion of Appalachian coal
prices (down more than 40% YoY), we estimate the soft cap on
natural gas prices is just over $3 an MMBtu, compared with $5
an MMBtu a year ago," the Oct. 30 article quotes Bank of
America, which says it expects U.S. gas prices to average $2.35
an MMBtu this year and $2.40 in 2021.
Evercore's 2020 gas price projection is $2.55 an MMBtu.
Petrie suggests, "It is a tough haul to see gas do much better
in the peak demand period than a weighted average closer to $3
than $4. The LNG build-out will begin to eat away at that (price
weakness), but I am not as optimistic that it will happen as
quickly as it will for oil."
RBC, which projects a 2020 average U.S. natural gas price
of $2.63 an MMBtu, comments, "Prices are more likely than
not to remain challenged. However, we continue to question
whether we should be entirely bearish while at the same time
talking about slowing production growth and rising exports.
"The next two years likely will be a test as to not only
whether U.S. supply growth does indeed slow, but to what
extent domestic demand can soak up still growing supply, and to

FIGURE 4
Natural Gas Prices at Which Operators
Would Alter 2020 Drilling Plans
100
Cumulative Percent of Operators

like 9 Bcf/d-10 Bcf/d."
"U.S. LNG export growth has been near exponential since
2016, exceeding 5 Bcf/d for the first time in 2019," Deloitte
corroborates in its 2020 Oil, Gas and Chemical Industry Outlook.
"Once projects under construction are completed and fully
ramped up, exports could hit 10 Bcf/d over the next year or
two."
Adds Petrie, "We probably can take that to 14 Bcf/d-15
Bcf/d if the Federal Energy Regulatory Commission is willing
to stay focused on permitting. In the longer run it wouldn't
surprise me if we could get to 20 Bcf/d. And we may need to
because the markets that can use it are out there."
The challenge for LNG, Deloitte allows, is "a soft global gas
market. U.S. cargo pricing is not as attractive as it once was."
S&P Global Platts provides some detail in its 2020 Energy
Outlook, predicting that Dutch natural gas trading hub prices
will average $4.15 an MMBtu this year, bottoming at $2.75 in
the third quarter. "This will be challenging to U.S. LNG breakevens and force a temporary underutilization of liquefaction capacity this summer," Platts reasons.
Adds Morgan Stanley, "Our forecasts imply an approximate
20% incremental downside to 2020-21 European and a 5%11% (downside) to Asian forward gas prices. Our long-term
Henry Hub price outlook of $2.50 an MMBtu is unchanged."

80.0
80

68.4
53.3

42.1
40
21.1
20

0
0.25

13.3

1.00

2.00
3.00
4.00
Wellhead Natural Gas Price (Dollars per Mcf)

5.00

Percentages in Figure 4 represent the cumulative total of survey
respondents that indicate they would have altered their 2020
drilling plans by the time the wellhead natural gas price reached
the indicated amount. Prices at which drilling would decrease are
plotted to the left of the graph in a downward curve; prices at which
drilling would increase are plotted to the right of the graph in an
upward curve.

what extent record exports are able to serve as a reliable relief
valve amid fluctuating global demand," the firm concludes.
Price Response
As for producer expectations, respondents to AOGR's Survey
of Independent Operators are basing their 2020 drilling plans
on $2.58 an Mcf, while Evercore reports its survey respondents
on budgeting on $2.37 gas.
In not exactly an apples-to-apples comparison, the Kansas
City Fed says respondents to its third quarter survey picked
$2.91 an MMBtu as the gas price necessary for profitability,
with responses ranging from $1.25 to $4.00.
At $3.25 an Mcf, 21.1% of AOGR respondents indicate they
would increase their 2020 drilling plans (Figure 4). That goes
to 42.1% at $3.50, to 57.9% at $4.00 and to 68.4% at $4.50.
On the downside, only 13.3% of AOGR respondents say
they would cut their 2020 drilling programs at a $2.25 gas
price, but 53.3% would do so at $2.00. At $1.75, 80.0% say
they would drill fewer wells.
Evercore reports that "a whopping 50% of (its 2020 outlook
survey) respondents would neither increase nor decrease their
capex plans under any price scenario."
"For upward revisions, we observe that the average price
deck needed to bring capex higher is $3.10 an MMBtu, although
the upside risk is more limited versus oil, given that 53% of respondents would keep budgets in place no matter the upside in
price," the company continues. "For downward revisions, we
observe that roughly $1.95 is the average floor where most will
cut investments, although a fair number of respondents intend
to cut spend even if prices are above $2.00 an MMBtu."
❒
JANUARY 2020 39

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American Oil and Gas Reporter - January 2020

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