Even with the LNG growth, demand is struggling to keep up with supply availability, leading to a slowdown from the past five years’ heady days. The pace of future midstream projects will slow as investments are pulled back at both the upstream and downstream end of the value chain.
JOHN HILFIKER, S&P GLOBAL PLATTS ANALYTICS
By John Hilfiker
Senior Energy Analyst – North American Gas & Power, S&P Global Platts Analytics
A slow down in US gas production growth will limit the supply-push for long-haul midstream projects. Growth in midstream infrastructure will center on future gas demand from US Gulf Coast liquefied natural gas (LNG) export facilities. Otherwise, gas demand prospects in the US are highly limited despite the chronically low gas price, even in regions where midstream constraints are persistent.
Over the next five years, LNG export demand will more than offset an anticipated fall in power sector gas consumption. It will likely drive future midstream builds; with only 4.1 billion cubic feet per day (Bcf/d) of additional midstream capacity to emerge from key Northeast and West Texas basins.
Horizontal fracturing technology supported the build- out of midstream projects over the past decade, but the demand-side of the equation has struggled to keep up.
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Midstream developments
Even with the LNG growth, demand is struggling to keep up with supply availability, leading to a slowdown from the past five years’ heady days. The pace of future midstream projects will slow as investments are pulled back at both the upstream and downstream end of the value chain.
S&P Global Platts Analytics data shows that US dry gas production increased by 19.2 Bcf/d since 2015; but will only grow by an incremental 9.2 Bcf/d during the first half of this decade.
In the northeastern US, dry gas-targeted drilling in the Marcellus and Utica basins has sent gas production up by 62% since 2015; and midstream growth has struggled to keep up with it. Persistently low gas prices have shifted attention to the Permian Basin in West Texas, where higher wet gas production has helped supplement development.
At one time, higher gas prices and low drilling costs created tremendous growth in Marcellus and Utica basins gas production; which caused the Northeast region to flip into a net exporter of natural gas to surrounding markets since 2015. They required more than 14 Bcf/d of incremental midstream capacity.
Zealous Northeast producers have shifted the balance to a persistently oversupplied situation, with stubbornly low gas prices reverberated through the US. By 2025, S&P Global Platts Analytics is tracking just 2.6 Bcf/d of future incremental pipeline takeaway capacity, and 3.2 Bcf/d of Northeast dry gas production.
Gas expansion through liquefaction capabilities
Oil-targeted drilling in the Permian Basin has created 6.5 Bcf/d (136%) of associated gas production growth since 2015.
Despite low gas prices, resilient associated gas production in the Permian is forecast to grow by 7.2 Bcf/d (63%) over the next five years; where dry natural gas takeaway capacity may increase by 4.2 Bcf/d (34%). Under the previous assumption, additional midstream capacity from the Permian will be required by 2024 for roughly 1.5 Bcf/d.
Little federal oversight on Texas intrastate pipelines has aided a boom in long-haul midstream projects; from producing zones in the Permian, to LNG export demand growth on the Gulf Coast. LNG export de- mand has increased from zero in 2015 to a record monthly peak of 10.3 Bcf/d in November 2020. Up to four more greenfield LNG projects are expected over the next five years.
Brownfield liquefaction train expansions will also provide additional midstream expansion opportunities –; both of which total nearly 6 Bcf/d of incremental midstream capacity for LNG feed gas demand. US LNG exports are forecast to increase by 6.2 Bcf/d (93%) over the next five years.
The fall in natural gas prices has incentivized 58 gigawatts (GW) of gas power plant capacity development over the past five years. But gas plants currently under construction only total 12.3 GW, while 45.7 GW are in planning stages over the next five years –; implying a risk of delays or even outright project cancellation given the frontloaded magnitude of planned capacity.
S&P Forecasts
S&P Global Platts Analytics forecast total gas plant demand to decline by 1.1 Bcf/d over the next five years; bucking the historic trend when power burn grew by 4.5 Bcf/d, since 2015. The slowdown in US dry gas production, coupled with continued LNG growth; may increase US Henry Hub average gas prices from $1.87/MMBtu in 2020 so far to $2.90/MMBtu by 2025.
While all signs point to a tightening US gas market, US gas prices will face increasing exposure to global supply and demand forces; potentially capping upward price pressure on the Henry Hub benchmark.
