The ScottMadden Energy Industry Update | September 2015
In this section, we look at U.S. gas resources, production, and infrastructure.
Key highlights include:
- U.S. Gas Resources Still Growing: Equivalent to More than 140 Years’ Worth at 2014 Consumption Levels
- Natural Gas Production: Are Low Prices Having an Impact?
- Gas Pipelines: Getting Marcellus and Utica Gas to Market
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ENERGY SUPPLY, DEMAND, AND MARKETS U.S. GAS RESOURCES STILL GROWING:
EQUIVALENT TO MORE THAN 140 YEARS' WORTH AT 2014 CONSUMPTION LEVELS Estimates for proved and potential gas reserves in the United States are at record levels
America's Gas Resources Continue to Grow
- Estimated reserves* increased from 2012 to 2014 by 267 trillion cubic feet (TCF) to 3,832 TCF of “most likely” total gas resource for the United States, per the Potential Gas Committee’s (PGC) April 2015 estimate. This is equivalent to 140 years’ supply at current consumption levels
- Future gas supply estimates* (excluding cumulative production) rose 9% from PGC’s last (2012) estimate
The Marcellus Monster
- Total proved reserves are highest in Pennsylvania and West Virginia at 15.8 TCF and 10.1 TCF, respectively
- Largest absolute and percentage gains seen by the prolific Marcellus, Utica, and Rogersville shale plays, amounting to 137 TCF
Shale Resources Dominate
- As a share of total natural gas proved reserves, shale gas increased more than 30% from 2008 to 2013**
- Total shale gas reserves as a percentage of the country’s total potential resources is nearly 57%
NATURAL GAS PRODUCTION:
ARE LOW PRICES HAVING AN IMPACT? A Race between Rig Count and Well Productivity
Despite Low Gas Prices, Production Continues Apace
- Natural gas prices bounced back in 2014 from 2013, but year-todate 2015 prices remain a leg down in the sub-$3 range
- Despite low prices, gas production continues to grow, although capital budgets, especially for shale production, have been cut. U.S. gas production grew by 5% in 2014, averaging 68.4 BCF/day
- Rig counts have been declining as oil and natural gas liquids prices have declined as well, but productivity per rig is increasing
Increased Production Is Coming from Just a Few Areas
- Most production growth is coming from Marcellus and Utica shale plays, with Marcellus accounting for 20% of U.S. gas production
- But close attention should be paid to well drilling and completion
- Shale production is dynamic and can quickly respond to price declines by shifting to core areas and delaying well completions
- Pushing against that are production requirements as some lease terms near expiration
New but Lumpy Demand Emerging—A Promising 2016?
- Gas for electric power production was down in 2014 due to a cool summer. With lower spot and forward gas prices and new environmental rules taking effect, more coal-to-gas switching might be seen in 2015 and 2016
- Several liquified natural gas (LNG) export facilities now under development are expected to be operational in 2016 and beyond; but if low oil prices continue, oil-linked LNG pricing will be challenged
- Finally, increasing exports to Mexico and Canada are changing demand dynamics from traditional norms
GAS PIPELINES:
GETTING MARCELLUS AND UTICA GAS TO MARKET Expansion and flow reversal projects continue: low natural gas and liquids prices have yet to dim enthusiasm.
Despite Low Gas Prices, Production Continues Apace
- Northeast basis differentials (vs. Henry Hub) have been largely flat or negative for the past 24 months except during peak heating season (Dec.–Mar.)
- Additional transportation and processing capacity is needed due to:
- Continued Appalachian gas production growth (despite declining rig counts)
- Increasing demand from power generation
- Basis reversals
- About 29 BCF/day of takeaway capacity is under development in 43 new build and reversal projects to unlock Northeast gas and move it east, west, and south
- Development is shifting from reversals—like the 1.8 BCF/day Rockies Express, now taking gas from the Appalachian Basin to Midwest markets—to new build
- As bi-directional flows increase and additional greenfield takeaway capacity is developed, low basis differentials should continue
- This wave of construction is expected to peak in 2017–18
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