With varying degrees of bullishness, industry leaders, analysts and government representatives last Tuesday deconstructed the U.S. natural gas bonanza that seems to be the gift that keeps on giving, but not without various strings attached.
QEP Resources Inc. CEO and current chairman of America's Natural Gas Alliance (ANGA) Charles Stanley simply declared that abundant U.S. supplies "are here to stay" as part of an assessment of how the nation should maximize the opportunities coming with newfound robust oil/natural gas supplies. He was the luncheon keynote speaker at the LDC Gas Forum Rockies & the West in Los Angeles (Oct. 6-8).
On the more sobering side, Greg Singleton, a special adviser in the U.S. Department of Energy (DOE), outlined at least seven national natural gas issues needing attention if the United States is to meet current DOE energy goals of fostering economic competitiveness, environmental responsibility and energy security. Record gas production, he said, can't hurt the effort.
Several analysts from Thomson Reuters, Bentek Energy, and RBN Energy LLC emphasized the shale gas revolution, particularly in the Northeast, predicting that gas production will continue to see strong growth, despite low gas prices, at the same time the industry struggles to expand and alter infrastructure to meet changing markets.
While the national market attempts to gain balance, demand will continue to lag behind a production engine that keeps roaring on in the Marcellus, Utica, Eagle Ford and Permian Basin, they affirmed in different ways.
Even the bullish predictions about production have been "completely overwhelmed" by the 3.6 Bcf/d year-over-year increase in gas production, said Reza Haidari, manager of North American gas market trading for Thomson Reuters in New York City. Production levels are currently averaging about 70 Bcf/d, said Haidari, who is predicting that storage net injections nationally will continue this year through Nov. 21 rather than the traditional Nov. 1 cutoff for the injection season.
Saying the Northeast production from the Marcellus is flipping the market on its head, Luke Jackson, an analyst with Bentek, cited projections for the region accounting for 30% of the nation's gas production by 2019 after being just 5% of the U.S. production in 2010.
"The Northeast is on pace to account for 30% by the end of 2019, meaning we will see another 10 Bcf/d of growth in the region over the next five years, while the rest of the U.S. only expects to grow by about 5.5 Bcf/d in that time frame," Jackson said. "So huge, huge gains are in store for the Northeast, and the reason we continue to see so much production take place is that we have a huge backlog of wells that are currently in inventory.
"Those are wells that have been drilled, completed, but they are waiting for the pipeline infrastructure to start production." In total, Jackson estimates that there are nearly 2,000 wells that are backlogged in the Northeast.
RBN Energy's Rusty Braziel said the Northeast supplies’ challenge of finding markets eventually is going to impact the Rockies and the western region. "What we will see is that the markets are rather full, so the challenge is not so much capacity constraints but demand constraints as we move forward," Braziel said.
Collectively, the LDC Forum speakers were all bullish on gas, but they were uncertain how either the federal government or industry were going to grapple with huge infrastructure implications from plentiful supplies amid rapidly changing demand patterns.
Noting that gas, natural gas liquids, and oil production have all "gone through the roof" the past four years, growing by 46%, 47% and 71%, respectively, Braziel said that Northeast gas production is "going to try to find a home, and that is going to impact basins all around the United States, particularly in the Rockies."
Because of the physical and economic constraints, Braziel concludes that gas ultimately will converge on the Gulf Coast as a U.S. liquefied natural gas (LNG) business gets going, along with stepped-up exports to Mexico.
"We recognize that natural gas [representatives] need to come to the table with producers to solve the ongoing infrastructure challenges," said Stanley, adding that one of the solutions ANGA is pursuing involves working with a number of companies on details of long-term supply contracts and working with some entities to support additional infrastructure projects.
Among the assessments, SNL Energy's Steve Piper, associate director of energy fundamentals, offered a more cautious outlook on how much of the abundant gas production will eventually be exported. Piper thinks there is going to be stiff global competition for the U.S. supplies in Asia and Europe. It is not a slam dunk, he said.
A lot of the flared wet gas in North Dakota's Bakken -- he calls it "byproduct gas" -- will end up getting soaked up if all these LNG terminals are built, said Piper, who thinks the Jordan Cove LNG project along the coast of Oregon has a chance of getting developed, and that project would help stranded Rockies gas supplies find a market.
"At today's prices, U.S. gas producers may have cost advantages in Europe and Asia, but in the Pacific Basin, the Gorgon LNG Project in Australia certainly should give them pause," Piper said. "Pacific shippers are probably going to wait and see what happens after Gorgon comes online before they come to the table with any [North American] West Coast LNG suppliers. We'll have to just wait and see on this."