By - Jim Vess

Gas demand and production set to hit record highs this winter bolstered by LNG exports

Energize Weekly, October 16, 2019

U.S. natural gas demand and supply are both forecast to hit record highs this coming winter­­ – the result of growing exports, more gas-fired power generation and increased production from Texas’ Permian Basin, according to the Natural Gas Supply Association (NGSA).

The association’s Winter Outlook projects demand, including exports, to reach a record 109.3 billion cubic feet a day (Bcf/d) for the winter, up 3 percent, or about 3.1 Bcf/d, from the winter of 2018-2019. Production is forecast to grow 4.3 percent winter-over-winter to 92 Bcf/d.

The utility sector’s natural gas consumption is projected to hit a record 27 Bcf/d, up 5 percent from last winter, as natural gas-fired plants have become the industry’s main form of new generation.

In 2019, about 7,000 megawatts of new gas-fired generation came online, and by 2020, the federal Energy Information Administration (EIA) projects natural gas will supply 37 percent of the nation’s electricity.

The utility industry’s shift to natural gas has been driven by the ample supplies and low cost of the fuel. Last winter, the average price at the Henry Hub was $3.33 for a million British thermal units (BTU). The EIA forecast and NYMEX futures prices put this winter’s price at less than $3 a million BTUs.

The NGSA outlook, which was prepared by Energy Ventures Analysis, estimates that a 20-cent decline in the price of a million BTUs would increase the use of natural gas by utilities by 1.2 Bcf/d, while a 20-cent increase would reduce the use by 0.6 a million BTUs. “Thus, there is more potential upside to power burn for this coming winter because of the market price sensitivity of demand,” the study said.

Exports have been bolstered by the addition of new pipelines and liquid natural gas (LNG) capacity. Total exports are projected to increase nearly 52 percent to 14.1 Bcf/d.

Pipeline exports mainly through the Mexico Sur de Texas-Tuxpan pipeline are forecast to be 5.8 Bcf/d, and the addition of three new LNG trains will nearly double those exports to 8.3 Bcf/d by March 2020.

The largest consumers of natural gas are the residential and commercial sectors, but the forecast of a warmer, milder winter has their estimated consumption falling a little less than 1 percent to 36.1 Bcf/d.

Despite the overall increase in demand, the NGSA said that it seems there will neither be supply nor price pressures for the winter thanks to increased production led by new supplies from the Permian Basin and the other shale plays, such as the Marcellus Shale in Pennsylvania, where horizontal drilling and fracking have released previously inaccessible reserves.

This winter’s projected 4 Bcf/d increase in production comes after a 10 Bcf/d production increase in 2018. “We’ve witnessed amazing growth of nearly 40 percent in production in the six years since 2013,” Orlando A. Alvarez, NGSA chairman and head of BP’s North American gas marketing and trading business, said in a statement. “The shale revolution has ushered in a remarkable era.”

The Permian will contribute to the largest supply increase this coming winter as production is likely to ramp up quickly as the Gulf Coast Express pipeline and cross-border Mexico export pipelines are currently commissioning or recently entered service.

“Production in the Marcellus, Utica, and Haynesville shales will grow further to meet regional demand and fill takeaway capacity. The strong growth from these areas will more than offset declines from conventional plays,” the NGSA said.

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