Record U.S. Natural-Gas Output Likely To Continue In 2011

NEW YORK-The U.S. are awash in natural gas and the excess can not alleviate in the short term.
Domestic production last year reached its highest level in almost 40 years, and 2011 will likely see another year of strong production. This means that another year of weak electricity prices and the pressure in the lines of the drillers' bottom as well as a powerful incentive for businesses and consumers to switch to other heating fuels.
Natural gas production in the U.S. grew for the fifth consecutive year in 2010 and was the highest since 1973, the Energy Information Administration said Monday. Increased production of shale rock formations, newly profitable throughout the U.S. has exceeded the expectations of many industry observers, and the U.S. 21570000 produce millions of cubic feet of natural gas consumption level during the year, just below the 1973 record of 21.73 trillion cubic feet.
And there is no way to export large amounts of gas and drilling boom fueled by easy credit availability and high international interest in U.S. gas assets, the excess is deemed to continue until 2011.
"The increased production will overwhelm demand, leading to another year of low prices," said Credit Suisse analyst Stefan Revielle in a research note.
In its latest outlook, the EIA saw the production in the U.S., whom it increased by 0.8% this year, while deliveries to consumers is expected to increase by 0.3%.
For consumers, which means lower prices for electricity and cheap gas for heating and cooking in homes and businesses.
"There is a double benefit for the consumer both in their rates of gas and electricity bills," said Branko Terzic, Deloitte Center's executive director for Energy Solutions, a consultancy.
But for producers of wholesale power and gas drillers, whose benefits may be closely linked to commodity prices, excess gas that extends well into 2011 could pressure margins.
While cheap prices for commodities like oil and wheat could lead to more immediate demand as consumers become more likely to have long trips to resorts or increase in purchases of staples, drillers can not have a rapid response to consume the excess gas.
residential demand for fuel has stagnated for years to increase the efficiency of gas heating systems, "while the demand for energy intensive industries like chemicals and metal fabrication was beaten by the recession and the decline in U.S. manufacturing base.
Dow Chemical Co. CEO Andrew Liveris said last month that cheap natural gas could make the U.S. industry chemical products more competitive with foreign companies pay more for gas.
"The cost curve will change over time, U.S. producers will remain privileged as the cost of the second lowest in the world after the Middle East," Liveris said in a conference call to discuss the results of Dow's fourth quarter.
But any revival potential between heavy gas producers, is a story of longer term, analysts said. Industrial growth in the U.S. has outperformed the broader economic recovery, but its slow pace in 2011, analysts at Barclays Capital said in a research note.
In contrast, significant increases in U.S. demand This year will probably be led by increased use of gas utilities and market participants are closely observing the relationship between gas prices and coal. It's called fuel switching in industry, the substitution of gas for coal generation is likely to persist in 2011 as companies in favor of cheaper, cleaner-burning fuel.
gas electricity represents about a quarter of U.S. power generation, a percentage could increase as energy companies are expected to build more gas-fired plants instead of coal because of the threat of federal regulation of emissions of greenhouse gases.
The low U.S. gas prices compared with global rates have also prompted a move to export the fuel. Freeport LNG Development LP, together with Macquarie Group Ltd. and Cheniere Energy Inc. last year announced plans to build facilities in the Gulf of Mexico to export liquefied natural gas shipments. If the plans receive approval from the U.S. government, the facility could become operational in 2015.
As for 2011, "contraction of demand and growing source to send a clear message to the meteorologists," wrote analyst Michael Zenker Barclays in a research note. "The lower prices."

(Source: http://online.wsj.com/article/SB10001424052748704506004576174600947333970.html?mod=googlenews_wsj)