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If more electric vehicles (EV) are added to the U.S. transport mix, it actually could be a good thing for the U.S. natural gas market, according to the analyst team with Sanford C. Bernstein & Co.
Analyst Jean Ann Salisbury and her team at Bernstein said investors want to know how growth in EVs may impact oil and gas demand.
“We find that high penetration of EVs would indeed be good for U.S. gas price, but perhaps not for the reason that most might think,” Salisbury said. “The new demand for gas, even in a relatively bullish case, is actually quite small, owing to the high fuel efficiency of EVs,” which are four to five times more fuel efficient than gasoline-fueled vehicles.”
With gas making up only about one-third of the electricity generation, analysts determined that there would only be about 4 Bcf/d of gas demand by 2040, or 5% of current demand, even with high EV penetration.
“However, the larger and perhaps underappreciated impact on the gas market would be the decline in oil demand, and therefore oil and associated gas supply, which should move the gas price up,” Salisbury said.
Bernstein’s forward models indicate associated gas from oil drilling may account for more than half of the growth in domestic gas supply over the next decade, as it is “by far” the cheapest source of supply.
If associated gas stocks were depleted, “meeting gas demand would require bringing the higher cost, dry gas basins back into the equation faster,” Salisbury said. Thus, high EV penetration “might be most beneficial” for some gassy onshore operators.
However, don’t expect a windfall for gas demand as EVs penetrate the market, Salisbury said.
“Even in a relatively bullish case in which 37% of the 2040 fleet are electric vehicles, it is only plus-1.5 Bcf/d of gas demand by 2030 and plus-4 Bcf/d by 2040 versus today.”
A Bernstein analyst who covers Tesla said the base case is projecting EV sales to reach 20% of all automobile sales by 2030 and 50% by 2040, resulting in a 37% EV fleet by 2040.
As crude oil production declines in the unconventional basins, associated gas production also would fall.
“Our estimates for crude production to 2030 generate well over half of the expected gas supply growth that we need,” Salisbury said. “If crude, and therefore associated gas, actually begins to decline instead, the call on dry gas basins could become enormous.”
The Marcellus/Utica shales alone would be “close to tapped out on pipeline supply by the early 2020's, and it is unlikely that the Marcellus alone could fill the growth expectations plus the decline in associated gas.”
This in turn may increase the call on “second tier” dry gas basins including the Haynesville, Fayetteville and Barnett. Gas prices could even be pressured to increase to $5.00/MMBtu-plus, “driven by growth in the Barnett on the margin.”
Salisbury cautioned, however, that the view on EV market penetration is for 2030 and beyond.
“But if investors have a strong view in the forward trajectory of EVs, then the value of the acreage held by top producers in dry gas shales (Haynesville, Fayetteville, Barnett) should rise over the next decade by much faster than most expect.”