Mikaila Adams
Editor-News
Now in the books, 2018 was a remarkable year for US oil and natural gas production. With record-breaking shale development across the US came a 10-bcfd increase in gas production for the year, according to recent US Energy Information Administration data. With growth expected to continue, this abundant gas will likely keep prices muted over the medium term.
This year, gas production from the seven most prolific unconventional basins in the US is projected to increase by 1 bcfd from March to April, EIA said, with the largest increase coming from an expected 358-MMcfd increase from the Appalachian region to 31.51 bcfd.
Blessed with gas
“Mother nature blessed North America with many multiples of volumes of shale gas relative to shale oil,” touted Mark Papa, chairman and chief executive officer, Centennial Resource Development Inc., during a panel discussion last month at CERAWeek by IHS Markit in Houston. “There’s a vast amount of shale gas that’s still yet to be developed in North America and a significant amount of that is in Western Canada that’s still untapped. There’s a ton of gas in the Marcellus and Utica but there’s a lot of other shale gas in other parts of North America that could be developed,” he said.
“We’re likely to have a very low North American gas price simply because whatever exit ramps we have in terms of LNG egress will for the next 10-15 years be subsumed by the fact that we can develop shale gas resources in the North America continent faster than we can develop LNG export capabilities,” Papa noted.
The Appalachian region is front of mind with gas production from the Marcellus and Utica-Point Pleasant shales of Ohio, West Virginia, and Pennsylvania continuing to increase, EIA said, “with gross withdrawals increasing from 24.2 bcfd in 2017 to 28.5 bcfd in 2018.” It said, “Ohio saw the largest percentage increase in gross withdrawals of natural gas, up 34%, in 2018 to 6.5 bcfd.” With its rise in crude production, associated gas has placed the Permian basin second in terms of gas production. From March to April, gas has increased from 13.86 bcfd to 14.08 bcfd.
Rising demand for gas from electric power generation, exports, and new petrochemical facilities should offer support to prices over the next few years, Moody’s Investors Service said in a Mar. 21 report.
Supply-demand transitions
The North American gas industry faces transition, with stricter environmental regulation worldwide initially favoring gas before renewable energy technologies gradually become increasingly competitive. Still, abundant gas due to prolific shale development will likely keep prices muted and range-bound over the medium term, Moody’s said.
US gas supply has steadily risen over the last several years, transforming the marketplace as it begins to go global and seeks new markets beyond the reach of North American pipelines, Moody’s said. The difference between oil and gas prices has grown wider in North America, with gas prices markedly lower than oil for equivalent amounts of energy.
Gas prices also have varied with regional supply-demand dynamics because of transportation constraints between surplus regions and demand centers. New LNG infrastructure is connecting disparate markets as more countries import LNG, Moody’s said.
Gas prices outside North America tend to be higher and linked to oil in many parts of the world, but the pace of LNG project development is slowly delinking those prices as gas becomes increasingly nimble to meet demand, the report said. Gas also is likely to become more affordable globally based on its price advantage over oil. As noted in the report, in 2004, fewer than 15 countries imported LNG; in 2018, about 40 countries imported LNG and 19 exported it.
Expect it to be a while before gas prices behave more like oil, Moody’s said. Conditions in Venezuela or sanctions against Iran quickly reverberate through oil prices globally, and new gas transport capabilities will only gradually help minimize regional imbalances.
With little relief in North American oversupply conditions in the medium term, Moody’s said, prices should remain lower and range-bound, but midstream operators should gradually eliminate transportation constraints as demand continues to rise. As these constraints disappear, gas prices should rise gradually toward oil-equivalent prices over the long term, but still lower due to high logistics and transportation costs.
