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Monday, October 23, 2017

Active rigs:

$52.10↑	10/23/2017	10/23/2016	10/23/2015	10/23/2014	10/23/2013
Active Rigs	54	34	68	194	181

RBN Energy: US gas market will increasingly depend on exports to balance.

With the addition of new natural gas pipeline capacity, and crude oil and natural gas prices stabilizing near $50/bbl and $3/MMBtu, respectively, Lower-48 natural gas production this year is on the rise again and expected to increase by another 18 Bcf/d over the next several years.

Gas demand is growing too, but a big chunk of the incremental demand will come not from domestic consumption, but from exports via pipeline deliveries to Mexico and to overseas markets in the form of LNG.

Both of these outlets require substantial infrastructure development and will take time to ramp up. Moreover, much of this new demand will be concentrated in one geographic area — along the Gulf Coast. In addition to the Marcellus/Utica Shale region, several other supply basins are growing too and will compete for this new demand. How will these dynamics affect the gas market balance over the next few years? Will demand come on fast enough, and will all that new supply be able to find its way to the Gulf Coast? Or, is the market setting itself up for more transportation constraints? In today’s blog, we look at how supply and demand shifts will shape the gas market balance over the next several years.

This is Part 3 of a series laying out our five-year outlook for the U.S. natural gas supply and demand balance. In Part 1, we started with our outlook for the biggest driver of supply — production. After pulling back in 2016, Lower-48 natural gas production is clearly in growth mode again this year, not only from the Marcellus/Utica, but also from associated gas volumes in the crude-focused Permian Basin, and Oklahoma’s South Central Oklahoma Oil Province (SCOOP) and Sooner Trend Anadarko Canadian Kingfisher (STACK) plays.

Notably, this is happening at $50/bbl crude — a price level that a few years ago had producers tightening their belts and laying down rigs. But, today, ongoing drilling efficiency improvements have made it possible for producers to grow at prices that are $30 to $60/bbl lower than where they were prior to the oil price crash of 2014.

In Part 2, we quantified the other side of the equation — growing sources of demand, primarily exports. The biggest growth will be from outside the U.S., both from LNG exports as well as pipeline deliveries to Mexico from Texas. Based on the construction and completion schedules for the first wave of liquefaction projects underway along the Gulf and East coasts, we expect U.S. export capacity to reach nearly 11 Bcf/d by the end of 2019. At 85% to 90% utilization, that translates to just under 10 Bcf/d of LNG moving out of the U.S. in that timeframe. Then there are the exports to Mexico. Pipeline delivery capacity to the border has increased to about 9.0 Bcf/d in the past couple of years and will increase by another 3.5 Bcf/d by 2022. But deliveries are likely to be slower to follow, as shippers await takeaway and gas-fired power generation capacity growth across the border. Nevertheless, we expect cross-border flows to rise to as much as 8.0 Bcf/d in 2022. In terms of U.S. domestic consumption, the biggest growth area is gas-fired power generation demand, which we expect to average more than 28 Bcf/d by 2022. That is almost 3.0 Bcf/d higher than this year, but only 1.0 Bcf/d higher than 2016.

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