PITTSBURGH—At Hart Energy’s DUG East in early December, the future of natural gas prices was dissected, extrapolated, guessed at and some speakers even suggested that the whims of the weather gods could be a deciding factor.

Chris Kalnin, CEO of BKV Corp., took a more pragmatic approach, one that his company has used as it has made a number of gas-focused acquisitions—first in the Marcellus Shale and more recently in the Barnett Shale.

Kalnin said even basic price indicators suggest natural gas prices will fall between $3 and $4 per MMcf of natural gas. Lower 48 natural gas storage levels are about 90 Bcf below the five-year average, according to data from the Energy Information Administration.

But he also mused that an energy price super cycle could be in the works due to population growth, energy demand and underinvestment.

Kalnin noted, for instance, that years of low energy investments simply haven’t kept up with demand. In 2014, global fossil fuel investment was roughly $1.4 trillion. In 2021, the International Energy Agency (IEA) estimated it was roughly $795 billion, up slightly from 2020. 

But all forms of energy investment have lagged while even renewable energy has remained essentially flat.

Global Energy Investment Graph - BKV DUG East 2021
(Source: BKV Corp.; DUG East presentation)

Kalnin said that systemic underinvestment will have consequences.

“When you invest less in producing energy and your energy demand is growing ... you’re going to have a price response,” he said.

That demand will increase is a reality of population growth as the planet heads toward supporting 10 billion people in the next 30 years. IEA’s global energy demand shows a sharp increase in expected power needs between now and 2040.

As a matter of first principles, the world’s population is a primary driver in energy needs.

“Between more people, more mouths to feed, there is more energy consumption,” he said.

With those factors alone, Kalnin wonders if a new super cycle of demand will appear and noted that both Henry Hub and WTI prices have spiked in the past 12 months as the world resumes normal working order following the pandemic.

“The question I ask is ‘are we entering a new super cycle?’ And what I meant by that is you look over the last sort of five, 10 years, the unconventional boom has led to, at least in the U.S., a very comfortable situation from the supply perspective,” he said. “Are we now in a period of time where because we're underinvesting in energy, energy's going be tougher to come by? And it's going to cost more?”

For natural gas, Kalnin sees a robust future for prices, though with caveats.

First, E&Ps face an uphill battle as some investors consider the oil and gas sector as a profitable “sunset industry” with a limited shelf life, he said.

Publicly traded oil and gas companies have seen their values steadily tick up since December 2020, but despite now throwing off cash returns to investors they lag behind other sectors—even those “green” companies that may not produce revenue or income.

And he also said the most direct way to predict natural gas prices is to look at the way in which E&Ps spend money in the coming months.

BTU Analytics Demand and Supply Study Infographic - BKV DUG East 2021
(Source: BKV Corp.; DUG East presentation)

Even demand doesn’t matter, from a pricing perspective, he said.

“What really matters is how E&P companies redeploy their money. That is the single biggest factor,” he said, noting that the nation is only capable of supporting so much natural gas through LNG.

“The key to watch is the reinvestment rates. This will tell you where you’re going to end up,” he said. “If everybody loses self-control and puts all their money back into the ground we are going to see crash prices again.

“However, if we’re all hanging around the party, not rushing the buffet and just put about half of the money back into the ground, things are going be really good.”