Volatile forecasts of natural gas markets for 18 months or more, as well as more LNG export projects to the United States

U.S. natural gas markets are going to see big swings for at least a year and a half, with production volumes coming out this year at about the same rate as at the start of the year, according to an IHS expert Markit.

Jack Weixel of IHS Markit, Senior Practice Director Gas, Power and Energy Futures, presented his perspective on global market fluctuations, as well as the prospects for pipeline infrastructure growth in the United States, at the recent LDC Natural Gas Forums conference in New Orleans. .

“I think the volatility is here to stay for at least 18 months,” he told the audience. National gas production this year has been “stagnant … We will essentially exit 2021 at the same volumes as we entered there … It takes some time for producers to ramp up”, and activity has remained sluggish.

“You really need a stable supply – and a growing supply – to meet this growing demand,” Weixel said. “This is one of the peculiarities of this market. “

Price volatility going forward “maybe not all weatherization issues” like the shocking winter storm Uri last February “because I think this is being resolved in a lot of places. But certainly, where there are fuel shortages, you will see price spikes. “

Where is LNG growth expected in the United States?

Expansions of less than 48 liquefied natural gas (LNG) facilities are expected to continue on the Gulf Coast to help supply thirsty overseas markets. IHS Markit, reflecting other analysts’ forecasts, predicts that the Calcasieu Pass LNG facility in Louisiana will be online by the end of the year. The TransCameron pipeline that feeds the project was cleared by federal regulators earlier this year to come into service.

“In fact, we are already seeing flows towards the Col de Calcasieu,” Weixel said. “We can certainly see the rationale for further development of these Gulf Coast facilities as global demand increases… at least until the end of 2024.”

A massive amount of gas has yet to be unearthed in the Lower 48. However, moving it to end users is no longer a sure thing.

“It’s getting harder and harder to build pipelines in this country in general,” Weixel said. “There is a new kind of political reality… Things are changing. Meanwhile, proposed or ongoing pipeline projects in Lower 48 are dwindling.

“In 2017, we saw a peak of 24.2 billion cubic feet / d of new pipeline and 2,100 miles of pipeline,” he said of the Lower 48. “But since then we haven’t have yet to reach that peak in terms of capacity additions or pipeline miles. “

Projects led by exploration and production (E&P) companies have dried up, along with reduced capital spending and new developments.

“It wasn’t going to come out as much of the earth, so they didn’t invest as much transportation to get it to different places,” Weixel said of the E&P. “But I think we also have to recognize that there is a more sophisticated activist engagement” on the part of investors keen to implement environmental, social and governance initiatives.

“You also need to recognize the cultural shift towards a ‘green’ movement… These things are… important, and I think they will become more important as we move forward. “

To date this year, pipeline expansions in the United States have consistently exceeded 2020 levels and “are approaching 2019 levels.” By the end of the year, approximately 11 Bcf of net pipeline expansion is expected, along with 1,500 new miles of pipeline.

Growth in Texas and Louisiana

The growth, however, is not nationwide.

“Capacity additions in Texas and Louisiana accounted for 88% of all Lower 48 pipeline expansions and additions in 2020,” Weixel said. “In terms of line miles, 97%… that was built in the United States is in Texas or Louisiana, and most of it was in Texas. “

The Permian Basin has been the ground zero for much of the pipeline growth in Texas and Louisiana, where “there’s an attractive political climate… There are regulators that… don’t interfere. You get less friction from the state government in general… ”

[Tune In: Join NGI’s Director of Strategy & Research Patrick Rau as he dives into what to expect from third quarter earnings reports. From where U.S. natural gas producers are with regard to boosting production to the next wave of LNG projects, from the industry’s hyper-focus on RSG to M&A activity coming down the pike, get in the down with NGI’s Hub & Flow podcast.]

At the same time, a “cancellation culture” exists for expansions and new pipes, mainly in the northeast, which is home to the Appalachian Gas Basin.

“Since 2018, 30.4 billion cubic feet per day of expansion or new pipes have been canceled or suspended,” Weixel said. “A lot of it has been in the northeast. PennEast Pipeline was the most recent victim.

The Appalachian Gas Corridor has also seen the flow of the Constitution Pipeline, the Atlantic Coast Pipeline and the Access Northeast Pipeline.

“Many more have faced strong opposition from activists and the state government,” Weixel said. Going forward, “you are faced with a wave of regulatory requirements and also litigation to basically start innovating. It’s a sobering image over there… ”

As for the northeast, “we currently anticipate that the Mountain Valley pipeline may not be fully built until 2024,” Weixel said. “With the obstacles the pipeline has already encountered and the anticipated obstacles along the way, the commissioning date of 2022 may not be as realistic as it was originally thought …”

Without a new outlet for the Marcellus and Utica shale gas, “that pushes production up to a fairly high ceiling there, especially as we enter 2024… It is difficult to build a large long pipeline. – courier in the northeast for all the reasons we’ve seen through all the headlines. I can anticipate this kind of sad but continuing reality that many of our friends in the pipeline industry are going to face. “

By region, nearly 40% of pipeline cancellations took place in the Northeast. South Central, which includes Texas and Louisiana, also saw nearly 32% of proposals stay on the drawing board. Many South Central expansions have been put on hold due to market forces over state intervention, Weixel said.

Booming on the Gulf Coast

Even with some projects on hold, construction is in full swing to move gas from the Permian to Gulf Coast markets. Weixel said the increase in line mile capacity “was primarily due to two factors, increased border crossing capacity to Mexico and liquefaction, which is very prevalent in Texas.”

The Permian, “at least for the next three years, has enough pipelines to carry gas, mostly from west to east” through Texas. “This includes this year’s Permian Highway and Whistler additions,” as associated gas production from oil wells rebounds.

“If we go back to the… pre-Covid levels there, that associated gas can effectively be transported until the end of 2023. fine.”

The Haynesville shale gas also has “room to grow”. The region could expand “faster” as many E&P working on the coin are sponsored by private equity firms, which do not have the “balance sheet restrictions” of public producers.

“We think Haynesville is a very healthy area with what we call a higher market-based production cap,” Weixel said. IHS Markit’s assumptions show that growth is “good and healthy” and “goes back above 15-16 Bcf / d for the combined region there”.