THE bargain-basement US gas prices that forced a $US2.8 billion devaluation of BHP Billiton's Fayetteville shale assets last week look set to continue for the short-to-medium term, analysts say.
Wood Mackenzie head of oil and gas Noel Tomnay told BusinessDay last week that the US market was ''disconnected from the rest of the world'' with the Henry Hub gas price trading around $US3/mmbtu while European prices were at $US8-9/mmbtu and Asia-Pacific spot prices at $US14/mmbtu.
Mr Tomnay said the Henry Hub price would not reach the $US5/mmbtu range for six to eight years, when new LNG export projects would link the US market to the rest of the world.
''We do see quite a lot of LNG coming out of the US and Canada,'' he said, ''perhaps not quite 100 million tonnes per annum [as in Australia] as not all projects proposed will go ahead, and by the time you have shipped from the gulf coast to Japan it ends up costing $US11-12/mmbtu.''
For its part, BHP expects the gap between natural gas prices in the US and elsewhere will narrow in the longer term. The Henry Hub price was $US3.20/mmbtu at the end of July, up 67 per cent from its April 19 low of $US1.91/mmbtu.
Vikas Dwivedi, global oil and gas strategist at Macquarie Bank, said the gas price may not have bottomed. ''The rally has been delivered by unbelievably hot weather. Then there's been so much fuel switching, from coal plants turning off and natural gas plants replacing them. But these are both what I call 'fast friends'. And these fast friends could disappear fairly quickly.
''If you don't get real structural demand growth, via new homes or factories and industrial facilities that burn gas all the time, you're not getting real demand growth.''
Mr Dwivedi said the April 19 low, ''may have been the bottom, I'm not calling for a massive meltdown in prices and I don't think we're going to go back down to sub-$US2 any time soon, but I'm hard-pressed to see how we continue to rally here, unless the weather helps out''.
''If we take a weather-normal view, the answer is the supply/demand balance is pretty bad. We need supply to really adjust downward,'' he said.
Mr Dwivedi said there was factual and anecdotal evidence of new ''sticky'' industrial demand for gas, from committed or planned investment in petrochemical plants, primary metals and automobile manufacturers.
''The most recent is methanol, which is an extremely energy-intensive chemical,'' he said. ''There are a lot of proposals, a lot of interest. The one thing all these have in common is that they are all long lead-time projects. Nothing is going to show up of any real size in the next few quarters. We're talking 2016-17, when a lot of new facilities will come on at the same time.''
A faster source of new gas demand was the potential acceleration of coal-fired power generator shutdowns. ''Right now there is roughly 30 gigawatts of coal plants who've already given formal notification they're going to shut down,'' Mr Dwivedi said.
He described the shutdowns as semi-permanent. ''The intent is for the shutdown to be permanent, but if they don't knock the facility down, they can always re-start it - maintain a skeleton staff to just keep the rust off it. But the intent is to shut it down permanently.''
If gas prices rose substantially, he said: ''You could say, of all the coal plants that are shut down, maybe 20 per cent could come back on after a few months to a year - could be un-mothballed - but most of the rest will stay shut.''
That view is not universal. UBS commodities analyst Tom Price said fuel switching from coal to gas started happening when the Henry Hub gas price fell below $US3.50/mmbtu and, once it returned to those levels, ''we should expect a reversal of the trade''.