Growth prospects for Appalachian operators remain limited as the natural gas outlook continues to dim on a variety of factors, according to a panel of analysts from Bank of America Merrill Lynch (BofAML), which recently shared its forecast at the LDC Gas Forums Northeast in Boston.

BofAML is currently forecasting a 2020 natural gas price of $2.60/MMBtu, below the $2.77/MMBtu projection recently issued by the Energy Information Administration in its Short-Term Energy Outlook (STEO). Each price outlook has cited mild winter weather, which left storage inventories high heading into this summer, while ongoing production increases have contributed to record injections.

Robust domestic output is expected to continue, with dry gas production forecast to average 90.6 Bcf/d this year, up 7.2 Bcf/d compared with 2018, according to the EIA. The agency expects gas production will continue to grow in 2020, though at a slower rate, averaging 91.8 Bcf/d for the year.

While the Northeast has led the nation in gas growth over the last decade with current production estimated at about 32 Bcf/d, the trend is shifting toward associated gas plays, particularly growth in the oil-rich Permian Basin, which can move gas supply to the Gulf Coast for export. In Appalachia, a slowing pipeline buildout, cutbacks in spending and weaker longer-term demand are part of the reasons activity is being curbed. As the strip faces downward pressure, operators are expected to spend even less.

“We got the pipes here, we got the growth,” said BofAML analyst Clifton White, who led the panel. “Looking ahead, we see a transition from the Northeast on the growth trajectory to associated gas plays — it’s West Texas, Oklahoma, the Bakken, Rockies and Western Canada. We’ve seen that transition play out over the last year or two,” with growth in both the Northeast and associated gas.

Appalchian growth is expected to be more restrained, however. Pipeline capacity has grown at an astounding rate in the Northeast in recent years to about 23 Bcfe/d, with about 6 Bcf/d of takeaway under construction, according to a recent analysis by Moody’s Investor Service. Basis has improved in the process, and White said stronger local prices aren’t likely to spur an expanded infrastructure buildout.

“That’s kind of going to be it,” he said. “In our view, basis doesn’t really support a further wave of pipelines.”

Additionally, three of the region’s major pipeline projects — at more than 1 Bcf/d each — are facing consistent challenges from environmental groups. Construction on the Atlantic Coast Pipeline and Mountain Valley Pipeline has been hindered by repeated court challenges and the PennEast Pipeline has had difficulties obtaining permits.

New pipelines headed to the Gulf Coast from liquids-rich and oilier plays like those in the Permian and Midcontinent should allow associated gas production to keep growing in those regions. The Gulf Coast Express Pipeline, the Permian Highway Pipeline Project and the Midship Project are among those expected to enter service in the coming years, White said.

The panel also noted that the drilled but uncompleted (DUC) well inventory in Appalachia continues to dwindle. It began to slip in 2016 when pipeline capacity additions hit a low point and “producers responded and really cut back the activity there.” While drilling and completion activity has increased, completions have outpaced drilling since, “and we’ve really seen the DUC inventory get reduced over the last couple years,” White said.

The latest data available from the EIA shows that there were only 460 DUCs in Appalachia in April, compared with 764 at the same time last year. “In our view, this really reduces the ability for producers to respond in real-time” to short-term price swings,” White added.

In a market saturated with gas, the demand outlook also remains weak. As liquified natural gas (LNG) export demand falls off in the early 2020s and associated gas production ramps with more pipelines coming online, the wild card is a second wave of export facilities, the analysts noted.

More than 20 announced LNG projects totaling roughly 35 Bcf/d are looking to catch the second wave of gas exports over the next decade. New LNG projects could be limited by global demand as they would need customers to commit to a portion of future output to move ahead. Trade disputes with China are also clouding the picture and supplies from other countries could curb global demand for U.S. exports.

The silver lining for Appalachia could be power burn. Gas-fired generation has proliferated in the Northeast as low prices have knocked off other resources. Although the BofAML analysts and others who spoke at the conference said they were surprised by the level of investment that has poured into the new plants, they noted that the trend could continue.

While the panelists said they don’t expect renewables to pose much risk to natural gas in the Northeast power market, offshore wind development and state policies aimed at renewable energy, particularly in New England, could create more questions about the additional gains gas can make in the power stack going forward.