Natural gas prices will remain little-changed from their current levels over the remainder of the year and into 2012, analysts said as they review the fuel’s recovery from a slight dip in May amid a broader commodities sell-off and ahead of first-half 2011 financial results.

Low and comparatively stable natural gas markets are widely held to be structuring the impending future of the US power sector, limiting the uptake of more-expensive renewable fuels and easing the impacts of emissions limits that could impose new costs on power plants. The fuel’s accessibility and pricing has attracted the attention of alternative-fuel vehicle manufacturers, who propose a new transport system based on natural gas rather than refined petroleum.

Natural gas markets have historically been extremely volatile, but since 2008 have remained depressed under pressure from huge expansions in supply due to hydraulic fracturing technology increasing access to previously off-limits shale gas formations and from reduced demand in the struggling global economy. The stable pricing has begun to wear away at the power industry’s tradition of using natural gas as a peaking fuel, and generators have begun to treat the fuel as best for baseload.

The Numbers

Natural gas prices closed earlier this week at $4.54/mmBtu for prompt-month delivery on the CME Group-owned Nymex exchange, essentially unchanged from the year-earlier price of 4.52, although they had recovered 6.6% from the low on May 5, 2011 of $4.26/mmBtu.

Estimates of shale gas reserves vary widely, but there is little doubt that they are enormous and that companies are able to access them using hydrofracking technology. Most firms and analysts have shrugged off anticipated increases in regulation in response to concerns about the environmental impact of hydrofracking, despite new Texas regulations and Environmental Protection Agency investigations at a high-profile Chesapeake Energy fracking facility in Pennsylvania.

US natural gas prices will remain essentially unchanged in the second half of 2011, analysts at investment bank Barclays forecast. The bank expects the average price for 2011 to be $4.35/mmBtu, bumping up only very slightly to $4.55/mmBtu in 2012 with a long-term price forecast of $5.25/mmBtu.

In comparison with other fossil fuels used for both transport and generation, natural gas markets are essentially moribund in price terms. Crude oil was more than $20/barrel higher at $102/barrel for West Texas crude delivered to Cushing, Oklahoma than the previous year at the end of the second quarter of 2011, and Barclays forecasts crude will average $110/barrel in 2012. Long-term forecasts put US crude at more than $135/barrel.

More directly for generators, coal prices and the cost of burning coal in existing power plants are both rising. Coal prices have risen more than $50/metric tonne on the international market since 2009, and while there are significant regional price discrepancies, there is little doubt that a new natural gas plant could be built and operated for less than retrofitting a coal plant to meet new EPA rules, Massachusetts Institute of Technology professor Dr. Ernest Moniz told the Senate Energy and Natural Resources Committee on July 19, 2011.

There are potential threats to the passive natural gas pricing of recent years, and to forecasts for sustained price stability. Rising oil prices have pulled drilling equipment off of less-rewarding natural gas shale plays to newly-profitable shale oil fields, and a sustained price differential could further slow drilling of new natural gas reserves and tighten supply.

The Trends

Natural gas drilling regulations and the use of fossil fuels more generally are expected to be flash points in the upcoming national elections in 2012, and harsh federal limits on drilling could alter the cost-benefit analysis of drilling in many fields.

Over the longer term, many firms are positioning their natural gas generation assets as complimentary to a broader societal and regulatory shift to renewable fuels for electric generation, especially as costs decline in building large-scale renewable generating plants. New natural gas turbines from GE are designed to cycle up and down quickly to bridge periods of high electricity demand when renewable power from wind and solar dips for reasons beyond operators’ control.

Even natural gas firms are starting to invest in renewable fuels, with Chesapeake recently announcing its $155 million investment in biofuels firm Sundrop Fuels.