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.
To understand how the new drilling economics will impact production volumes over the next few years, we fired up the RBN Production Economics and Production Forecasting Models. Since much of the gas production growth is happening in crude-focused plays, we started with a crude production forecast. We ran the models against three scenarios. In the low-price case, if prices sit right where they are now around $50/bbl, U.S. crude production would still climb, albeit modestly, to nearly 10 MMb/d in 2022. On the high side, if prices take off to $65/bbl, crude would get to 12.5 MMb/d in 2022; and, if we split the difference, at $57/bbl, it would increase to 11.2 MMb/d. What does that mean for gas production? Assuming middle-of-the-road pricing of $57/bbl crude and $3/MMBtu (what we call RBN’s Growth Scenario), the model shows that gas will head to 92 Bcf/d in 2022, up from 74 Bcf/d currently. That’s quite a lot of gas for the market to absorb in a relatively short time, and that can only happen if there is sufficient downstream demand to absorb it and the ability for the gas to reach it.
To access the remainder of Too Much Gas on My Hands! - U.S. Gas Market Will Increasingly Depend on Exports to Balance you must be logged as a RBN Backstage Pass™ subscriber.
Full access to the RBN Energy blog archive which includes any posting more than 5 days old is available only to RBN Backstage Pass™ subscribers. In addition to blog archive access, RBN Backstage Pass™ resources include Drill-Down Reports, Spotlight Reports, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. If you have already purchased a subscription, be sure you are logged in For additional help or information, contact us at [email protected] or 888-613-8874.