Too Much Gas on My Hands! - Prospects for Export and Power Demand Growth

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.

This is Part 2 of a breakdown of our five-year outlook for the U.S. natural gas supply and demand balance. We began the series with a look at production trends in Part 1, namely that producers this year are emerging from the recent period of low oil prices, tightening capex budgets and contracting volumes. Crude production is nearly back up to its peak of 9.6 MMb/d set in April 2015, and is likely to surpass it soon. Similarly, Lower-48 dry gas production has been roaring back and approaching a record 75 Bcf/d, led by the Marcellus/Utica shale, as well as associated gas production in crude-focused regions, including the Permian and Oklahoma’s South Central Oklahoma Oil Province (SCOOP) and Sooner Trend Anadarko Canadian Kingfisher (STACK) shale plays.

Moreover, drilling economics suggest production growth will continue even with prices staying where they are now — with crude just over $50/bbl and gas about $3/MMBtu. To recap, the RBN Production Economics and Production Forecasting Models showed the following results against three price scenarios: 1) in our high-price outlook — the Advance Scenario, assuming $65/bbl crude in 2022 — crude production would rise to 12.5 MMb/d over the next five years, or by 700 Mb/d per year; 2) in our low-price case — the Cutback Scenario, in which prices linger around $50 through 2022 — we would expect production to still grow but at a much slower pace of 250 Mb/d per year to 9.9 MMb/d by 2022. And, in our middle-of-the-road case — the Growth Scenario, in which prices head to $57/bbl by 2022 — production would climb to 11.2 MMb/d by 2022. In other words, crude oil production is expected to grow even with prices muddling along at current levels near $50/bbl for the next five years, and if prices go up from here, that growth would be significant. And, crude production growth invariably will bring with it proportionally higher associated gas production.

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