While natural gas producers had a challenging year in 2020, there’s reason for optimism in 2021. In the second of a two-part conversation, host Daniel Litwin discusses with Steve Hendrickson, President of Ralph E. Davis Associates, the state of the natural gas industry and what trends may impact the sector going forward in 2021.
Natural gas is inherently a cyclical business and Hendrickson has seen peaks and valleys in previous years. “There were declines in production when I first started in the industry. Then came along the shale revolution and our situation changed completely,” he says.
Today, companies must rely on capital discipline because of higher investment scrutiny to make sure they’re assessing all the risks. “Companies are looking to keep costs down and focus on their best assets. Some are doing this with consolidations,” Hendrickson says.
Another factor that’ll play out for natural gas is the new presidential administration. “Federal regulation or any type of regulation can impact things both on the supply and on the demand side. I see the new administration focusing more on coal to improve CO2 emissions,” Hendrickson says.
The adoption of electric vehicles will also impact the future of natural gas. Hendrickson asserts this isn’t bad for natural gas, as the cars still need energy. “An increase in electricity demand is favorable for natural gas,” he says.
As for the future, Hendrickson predicts that natural gas prices should increase in 2021, but that will depend on an economic recovery from the pandemic.
“I think this year is going to be a better year than last year [for natural gas],” Hendrickson says. “If you have gas production on today, that’s great news because you’ve already invested the money to get that production online and you should be able to see higher revenues from that.”
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