What 2015 Holds for Natural Gas in the Pacific Northwest: Three Trends We Are Watching in the New Year

2015 is here and while it doesn’t look much like the creators of “Back to the Future II” predicted (no hoverboards!), we’re living in an exciting time for energy industry observers and stakeholders.

Here are three questions we’re particularly intrigued by at the start of the year. Stay tuned as we seek out answers throughout 2015:

1. Will we see firm investment decisions on big regional demand projects?

We’ve spent the past couple of years talking about the potential for large new industrial natural gas loads in the Pacific Northwest. Proposals include:

  • Three methanol plants. The combined demand from all three facilities would approach one million dekatherms per day, almost half of the entire region’s average daily load.
  • Two LNG export facilities in Oregon and as many as six in British Columbia continue to work toward approval.
  • Numerous smaller-scale projects, including new food processing facilities, a fertilizer plant, and L/CNG for transportation.

Signals of definite intent to move forward on some or all of these projects would serve as an inflection point, kicking off serious discussions on the expansion of natural gas transmission and storage infrastructure to serve the region. In a virtuous circle, large infrastructure development could open the door to additional smaller-scale demand projects.

We’ll go into more depth on these dynamics with the release of our 2015 Natural Gas Outlook Study this spring.

2. What do low oil prices mean for natural gas?

Since June 2014 oil prices have dropped by 57%, a slump largely attributed to growing supply from US shale plays, many of which also produce natural gas. Low oil prices have thrown the stock market into flux, raised concerns about geopolitical turmoil, and tightened the price differential between natural gas and oil.

Will 2015 see an increase in the commodity price of both oil and natural gas as shale producers idle drilling rigs in response to market conditions? These concerns are old hat to natural gas industry observers. Skeptics have been wringing their collective hands over a sudden increase in prices since at least 2011.

The reality has been three years of relatively stable natural gas prices as the US continues to produce more and more natural gas. In fact, US production hit an all-time record in December of 2014. Will oil enjoy the same dynamic? We don’t know. The US Energy Information Administration is projecting 2015 average prices for Oil at $56/barrel and natural gas at $3.44/mmbtu. We are especially interested in the impact of low oil prices on natural gas prices.

3. Will discussions on climate policy embrace or shun natural gas?

2015 brings long legislative sessions in Oregon and Washington with climate change on the agenda in both states. Will legislators recognize the role natural gas can play (and has already played) in reducing CO2 emissions?

Natural gas has proved an effective tool in reducing CO2 emissions, displacing coal while largely enabling the addition of renewable generation. A recent Breakthrough Institute report notes new natural gas additions to the US generating fleet since 2007 have served to avoid almost as many tons of CO2 per megawatt-hour as new wind power installations.

Co2 Avoided

Opportunities exist to reduce regional emissions via the use of natural gas use for transportation, through innovative emission reduction programs like Oregon’s recent Senate Bill 844, and by increased direct use of natural gas for in home use. We’ll be paying close attention throughout the session.