exports to Mexico

For a time after crude oil prices crashed in 2014-15, the Marcellus/Utica Shale — and also the Permian Basin to some degree — had something of a monopoly on natural gas production growth in the Lower 48. With oil prices lagging behind $50/bbl, associated gas from crude-focused plays were either in decline or, at best, in a holding pattern. But now with crude above $50 and gas above $3.00/MMBtu, just about all the major basins — including Permian, SCOOP and STACK, even Haynesville — are growing again. Nearly all of the new supply is targeting the Gulf Coast, hoping to capture market share of burgeoning export demand from the region. But not all of that supply will be able to get to where the demand is, which means, supply competition for transportation capacity and demand is bound to heat up. Today, we wrap up a blog series on our U.S. gas supply and demand outlook, in particular how we see these dynamics will shake out over the next several years.

Midstreamers in recent years have been in overdrive to de-bottleneck the Marcellus/Utica natural gas supply region as well as other growing gas supply basins and connect producers to where the demand is increasing. Significant transportation capacity has been added in recent years and much more is on the way. Constraints are starting to ease and producers are finding relief. But with production growing again, there are signs of potential new bottlenecks on the horizon. The RBN Growth Scenario estimates that Lower-48 gas production could increase to 92 Bcf/d by 2022. Demand is expected to grow too — primarily from exports — but no more (and potentially less) than supply in the same timeframe, leaving the market in a precarious equilibrium over the next five years. Thus, it will be all the more critical that incremental supply can access what new demand there will be. At the same time, demand growth will be concentrated in one geographic region — in the Gulf Coast states. In today’s blog, we explore the potential risks of overproduction as producers crank up drilling activity.

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.

Lower-48 natural gas production is expected to surge 18 Bcf/d (25%) by 2022 to 90 Bcf/d, up from an average near 72 Bcf/d this year. Gas demand is also on the rise, mostly from exports. The U.S. is expected to add 8.0 Bcf/d of new LNG export capacity in the next few years. At the same time, there is ample new pipeline capacity available for gas deliveries to Mexico from Texas, with more on the way, and gas-fired power generation demand is also expected to increase steadily. Will all this new demand be enough to absorb the incremental supply, and what will be the timing of it? In today’s blog, we continue our five-year outlook series, this time with a focus on the demand side of the equation.