Natural Gas Market Speculations to 2020

Natural Gas Market Speculations to 2020

v  Appalachian takeaway capacity closer to becoming adequate with several new high volume pipelines set to go into service by 2020. It is unclear how much buildout will be needed beyond the pipelines already in the works. Certainly there will be trunk lines and large gathering lines and most pipelines coming out of Appalachia will be filled to capacity. Delays have become the norm.

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 Appalachian negative basis differential should not get nearly as big as it has been and should trade much closer to Henry Hub on average but perhaps lower at times due to local variables and weather variables. There may be some strain and temporary returns to lower prices ahead of current pipeline projects coming into service.

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Current production has been dropping but should be fairly steady in 2017. Supply should be closer to demand in 2017 and probably all the way to 2020. EIA predicts that production will not match the high in 2015 (74.1 BCF/day avg.) until sometime in 2018, with 2017 production predicted at 73.8 BCF/day and 2018 at 76.6 BCF/day.

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DUCs are still an issue, albeit a much smaller one. More efficient drilling and completion allows wells to be drilled and completed faster but multi-pad drilling, simultaneous fracking, and longer laterals buffers that and increases the time for a set of wells to come on-line. Higher initial production rates means less drop effects from depletion. So even though it may take 3 months or more to get a multi-well pad drilled and put in line that new pad production will be quite large.

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 Much of the Eagle Ford gas from South Texas and the Permian gas from southwest Texas will be exported to Mexico. Plays near the Gulf Coast: Cotton Valley, Haynesville, and possibly Fayetteville/Brown Dense will possibly ramp up in the short term to feed markets there ahead of Appalachian takeaway as prices rise or stay at current levels. Availability of gas from the SCOOP/STACK and other plays in the midcontinent and some Rockies gas will help feed other markets. Niobrara wells in the Rockies are making more gas.

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The LNG and power markets fed by new Appalachian pipelines will increase overall demand. Industrial demand is predicted to be fairly flat or have modest increases. New methanol, ethylene, ethane crackers, fertilizer, dehydrogenation, and other petrochemical plants will add to that demand. Gas will likely continue to replace coal although there may be more coal burned in some plants due to the slightly higher price of gas compared to what it was. EIA predicts demand from residential and commercial to remain the same, with demand for electric power and industrial to have modest increases.

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 Slight increases in demand from natural gas vehicles, natural gas replacing diesel in trains, ships, buses, pumps, drilling rigs, fleet vehicles, and new natural gas service for communities to replace heating oil – but overall these additions won’t affect overall demand much.  

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 2016/2017 winter will be a big factor in 2017 gas prices, especially for Appalachia. This should be less of a factor in subsequent years due to more takeaway capacity and more demand. EIA predicts natural gas prices nationwide to avg. $3.55 per MCF in 2017 and $3.73 in 2018. Avg. for 2016 was $2.55.   

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 Core areas will continue to be the main focus as most are now fairly well defined. However, new play extensions and core areas continue to be delineated. The Alpine High in the Delaware Permian and the new big wells in the Merimac (SCOOP/STACK) are examples.

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 New completion designs may continue to increase production and reduce costs. Longer laterals will do the same. 

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Continued focus on public acceptance, more than adequate compliance, and good public relations will help the oil and gas industry. This includes methane and VOC emissions assessment, good water management, good traffic management, reduction of accidents, spills, leaks, and explosions, and implementation of industry best practices throughout the industry.

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 Trump’s vow to open up more Federal lands for drilling is not likely to have a large effect and could even lead to some oversupply situations at some point. Only areas with good economics and infrastructure will be pursued. His vow to tone down Federal regulations also will not have much of an affect since most applicable regs are at the state level.