Report: Natural gas prices to surpass wood pellets in 8 years

By Luke Geiver | June 05, 2012

A new report issued by FutureMetrics LLC predicts that the price of natural gas will be higher than that of wood pellet fuel within the next three to eight years.

“We believe that well before 2020 we will see the end of cheap natural gas,” the report noted. “Rapidly increasing global demand in the transportation and power sectors and the rapid growth of LNG export capacity will force domestic users to bid for gas against users in sectors and locations that are willing to pay much higher prices than we pay today.”

The report, “An Analysis of the Future of Natural Gas Prices and Wood Pellet Prices: Natural gas will become much more costly than wood pellets,” uses the common reference of the U.S. as “the Saudi Arabia of natural gas,” to help explain the pricing future of natural gas. From 2010 to 2011 alone, the report notes, the U.S. Energy Information Agency’s estimates of total dry gas reserves increased from 1,950 trillion cubic feet (tcf) to roughly 2,550 tcf. That increase came from shale gas reserves that increased from 350 tcf to 825 tcf from 2010 to 2011. According to the report, common wisdom shows that with even more shale gas reserve increases expected, the price for natural gas will remain low.

“Just as the real Saudi Arabia has a strong interest in seeing shiploads of petroleum transit the Atlantic, domestic producers of natural gas have a very strong interest in opening up to the world market and seeing shiploads of LNG heading to hungry markets like Japan, India, China, South Korea and Brazil,” the report said. Natural Gas producers will benefit financially from exporting products like Liquefied Natural Gas (LNG), the report points out, but not without consequences to domestic users. Because exporting will remove the constraint on domestic producers to match their supply with real time demand, helping avoid excess production, those producers will be able to seek out other markets for their excess product. In many cases, the report said, those other, non-domestic markets will be willing to pay a higher price for that product, which in turn raises the prices of domestic natural gas. 

That exporting influence that could potentially raise fuel prices is also present for wood pellets. Although it is possible that European demand for wood pellets sourced from North America could raise pellet prices, it depends on how carbon emissions are penalized. Current economics show that domestically used wood pellets generate more profit than those shipped overseas because many overseas pellets are cofired with coal, requiring finer particle size, which in turn increases pellet production costs, based on the electricity necessary to pulverize the pellets.

To view the report, click here