Editor’s Note: This is one of a 14-piece series NGI undertook as the energy industry readied for the new year, with Lower 48 natural gas and oil supply continuing to surge in an uncertain environment as liquefied natural gas exports ramp up, Mexico markets remain shrouded and stakeholders demand more value. Get your complimentary copy of NGI’s 2020 Special Report today.
At the dawn of a new decade for the natural gas industry, a slew of unanswered questions looms large on the horizon concerning how production and prices will fare going into the 2020s.
The 2010s marked the rise of unconventional onshore development, and one consequence of the unprecedented production growth that followed — low natural gas prices — has become painfully evident as 2019 drew to a close.
The most-read Daily GPI stories of 2019 showed an industry trying to figure out what the next era of shale development — and by extension, commodity prices — will look like. Readers were particularly interested in the gassy Appalachian Basin; several of the top stories of 2019 focused on the Marcellus and Utica shales, and not just upstream, but also further down the value chain.
It’s no secret that exploration and production (E&P) companies are facing significant headwinds entering 2020. Production has outpaced demand, sinking natural gas prices at a time when investors have run out of patience and are seeking better results.
Against this backdrop, it’s no surprise that readers wanted to better understand the dimming outlook for Appalachian E&Ps.
“Gas prices are horrible, and there’s no visibility on them improving,” one analyst, who asked for anonymity, told NGI in August. “There’s just too much supply, too much associated gas, economics are marginal, and a lot of these companies are broken and have too much debt.”
It was a pullback in development in the Northeast that led Tulsa-based Williams to institute a “voluntary separation program,” announced during a quarterly conference call in August.
“Confidence in low-cost U.S. natural gas reserves will continue to drive strong natural gas demand growth over the long term,” CEO Alan Armstrong said at the time. “And as a result, we believe that there will have to be a call on natural gas-focused supply areas given the continuous growth in natural gas demand and the stronger-than-ever capital disciplined being demonstrated by the producer community.”
In the near-term, however, “we continue to see commodity price headwinds for our producer customers” in the Northeast, served by Transcontinental Gas Pipe Line Co., aka Transco, and “producers are responding appropriately to the current market conditions.”
With all the gas coming out of the ground needing a place to go and a way to get there, new developments on the infrastructure front made a big splash in 2019.
In April, PTT Global Chemical pcl and Daelim Industrial Co. made headlines by signaling progress on their proposed ethane cracker in Ohio.
Meanwhile, the legal and regulatory battle over efforts to build new pipelines to transport gas out of the Appalachian Basin raged on in 2019.
Amid plenty of setbacks, industry advocates also saw encouraging developments in 2019, such as when the U.S. Court of Appeals for the Second Circuit in February vacated the New York Department of Environmental Conservation’s (DEC) denial of a key permit for National Fuel Gas Co.’s long-stalled Northern Access project.
The court’s decision was hailed by the Natural Gas Supply Association (NGSA). “State denials of 401 water certifications must be closely scrutinized to ensure that states are sticking to the facts instead of using their certificates as a tactic simply to limit infrastructure,” said Executive Vice President Pat Jagtiani following the ruling. “It’s unfortunate that the DEC’s actions delayed a pipeline that would provide economic growth to New York’s citizens and businesses, while depriving other states reliable access to natural gas supplies that are needed for clean electricity, winter heating and industrial manufacturing.”
Of course, the outlook for Appalachian production is only part of the puzzle, with associated gas — led by the prolific Permian Basin — playing a major role in shaping the future supply/demand balance for natural gas.
Takeaway constraints crushed gas prices in the crude-focused Permian in 2019 as producers struggled to offload their associated volumes. Readers paid close attention to analysis of all the flaring taking place in the Permian. Venting and flaring in the play reached new highs in 3Q2019.
Once the 2 Bcf/d Gulf Coast Express came online in September, some portion of those flared volumes likely made their way onto the new pipeline, as capacity quickly filled up. In fact, market signals suggest more takeaway is needed, and soon; Waha spot prices fell back into negative territory late last week.
Amid the rapid changes occurring in the industry, price projections naturally grabbed plenty of attention in 2019. The Energy Information Administration’s forecast for Henry Hub for 2019 and 2020 slipped as the year progressed.
The agency chronicled the higher-than-average pace of injections in 2019, which erased a deficit that had roiled markets during the 2018/19 winter.
Private firms such as Goldman Sachs similarly presented a subdued outlook for natural gas prices over the next couple years. In September, the firm lowered its assumed average natural gas price for 2020-2021 to $2.50/MMBtu, down from $2.75. Goldman analysts pointed to the unrelenting onslaught of Lower 48 supplies.
“With additional Permian Basin connectivity to Henry Hub markets…and the Haynesville Shale rig count still robust, we believe we do not need as strong a price signal for gas-by-choice drilling,” analysts led by Brian Singer said at the time.
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