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Appalachian North American Oil &Gas Industry Punctuated by Volatility Moving Forward

Appalachian  North American Oil & Gas Industry Punctuated by Volatility Moving Forward
By: Rick Stouffer

HOUSTON — The North American oil and gas industry can be summed up in one word for the next two to four years:

Volatility.

Whether talking about product prices or production, the next few years will see
numerous ups and downs, as producers:
• Continue to try matching supply with demand
• Take into account new and expanded pipelines
• Fold in the international outlook for exports
• Combat the industry’s “herd” mentality to chase demand full-bore regardless of consequences
• Face possible manpower shortages in certain plays.

The above points and much more were covered last week at an all-day conference in this energy city presented by consulting/analytics firm BTU Analytics. “What Lies Ahead 2017” detailed the analysts’ projections moving through 2017 and beyond. Kallanish Energy was in attendance.

Supply-demand balance ‘tenuous’
“Over the next 12 to 18 months, the global balance between supply and demand is tenuous,” according to Tony Scott, BTU’s managing director of Analytics and Consulting. “U.S. activity goes up with crude at $50-$60 a barrel, which is likely to increase price volatility in 2017-2018.”

However, Scott told the audience of roughly 65, the global crude market will be supply-short after next ear – unless – the U.S. or the Middle Eastern countries step up their production.

“Stagnating oil demand per capita, excluding Asia, and global revisions to economic growth provide a worrying trend,” according to Scott.

Marcellus-Utica still a beast
On the natural gas side, one of BTU’s tenets is the Marcellus and Utica Shale plays in Pennsylvania, Ohio ad West Virginia, remain the “Beast in the East” when it comes to just shoving other plays out of the way with its overpowering production. And demand can come from nearly anywhere. “Despite over 10 billion cubic feet per day (Bcf/d) Appalachian greenfield and 3.0 Bcf/d brownfield projects, the amount of Appalachian gas arriving at Henry Hub (in Louisiana) is much lower than the market expects,” according to Andrew Bradford, CEO of BTU Analytics. Appalachian Basin natural gas volumes are offset by considerable demand growth in adjacent regions, limiting the impact of basin gas on Gulf Coast demand.

Overall, BTU Analytics projects 11.9 Bcf/d of demand growth from 2016 to 2022, “in-line with the U.S. trend of 1-2 Bcf/year since 2008,” Bradford said.

Regionally, proposed natural gas-fired power plants in Pennsylvania, Ohio, and West Virginia add potential regional demand of roughly 3.0 Bcf/d, according to BTU Analytics.

Big gas markets: Mexico, LNG exports
Bradford addressed two big markets for what is still considered by many industry watchers a natural gas glut: exports to Mexico via pipeline, and exports to the rest of the world via liquefied natural gas shipments.

“2018-2020 will be characterized by a demand-constrained market despite over 10 Bcf/d of growth, primarily from LNG and exports to Mexico,” Bradford said. “Pemex (Mexico’s state-owned energy company) production is declining in a weak price environment, driving the need for imported natural gas.”

Bradford said U.S. gas exports to Mexico will grow by 50%, from the current 4 Bcf/d, to 6 Bcf/d by January 2022.

LNG exports from the U.S. will grow over time, but volatility in exports will be driven by seasonal spreads and evolving global demand dynamics.

“There will be more than 8 Bcf/d of LNG exports by September 2022, from six export terminals, while capacity will be 9+ Bcf/d,” Bradford said.

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