Natural gas prices are likely to stay low for at least the next 20 years, with a long term annual average price of $4 to $5 per million Btu, a new study says.
The study by IHS details anticipated increase in demand from residential and commercial users and from exports.
Even with new demand, the quantity of U.S. gas resources is so vast thanks to unconventional drilling techniques that average Henry Hub prices should not rise dramatically from the $4 to $5 range, though they could fluctuate. (Henry Hub, based in Louisiana, is the delivery point for physical natural gas traded in the Nymex futures market.)Henry Hub prices averaged $4.24 per million British thermal units in December, and hit a high above $13 per million Btu in October 2005.
“We now have knowledge and comfort that we have an incredible resource base—technically recoverable resources of 3,000 trillion cubic feet,” said Rita Beale, IHS senior director of power, gas, coal and renewables. “We have 900 tcfs of gas that can be recovered for $4 or less.”
Natural gas futures were trading Friday at $4.34 per million Btu on the Nymex.
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Beale said the projection is a long term average and that higher demand in some years could mean increased pressure on prices, like in 2015-2016, when a large number of coal-powered plants will shut down.
“There will be more gas in the power grid, and we’ll have more chemical plants coming on line,” she said in an interview. “We do think we’ll have prices rising gently, not spike.”
She also does not expect U.S. gas prices to rise to prices elsewhere in the world, once the U.S. begins exporting gas, expected to begin in 2019. Prices in Asia and elsewhere can be in double digits, and they are linked to oil prices.
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The study says that challenges to natural gas use include conversion costs and regulations that can discourage economical natural gas projects.
The report also looks at the opportunity for natural gas in transportation, now in its infancy, and notes that never before has oil’s dominance in vehicles been challenged by such low gas prices.
For instance, retail gasoline and diesel prices are expected to be double the cost of equivalent natural gas.
Thanks to cheaper supply from shale gas production, projects are already underway to convert to natural gas.
—By CNBC’s Patti Domm. Follow her on Twitter @pattidomm.