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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The shale revolution will continue for another decade at least, keeping natural gas prices at or below $3 per million British thermal units (MMBtu), which will continue to drive capital decisions in the North American Oil & Gas and Power markets, according to a 25-year power and fuels forecast prepared by ABB Limited (NYSE:ABB) (Zurich, Switzerland). Officials from ABB's Energy Portfolio Management practice discussed the firm's reference case and three alternate scenarios for fuels and power prices in a webcast December 14.
Notably, ABB's current price forecast for gas is significantly below the firm's prior semi-annual forecast, released this spring. In that earlier forecast, ABB saw gas prices rising from about $3 per MMBtu in 2017 to $4 in about 2020, $5 in the late-2020s and $6 in 2036, all measured in 2016 dollars. In its current reference case scenario, again measured in 2016 dollars, the firm sees Henry Hub prices falling steadily from $3 per MMBtu at the start of 2017 to about $2.75 in 2019, before rising modestly and slowly to about $3 in the late 2020s. These prices also are significantly below Henry Hub futures prices on the New York Mercantile Exchange (NYMEX), as well as the Energy Information Administration's 2016 Annual Energy Outlook, released earlier this year.
The ABB forecast did not include projected natural gas production. However, the speakers on the December 14 webcast left no doubt that production would be growing. Gas production will increase, despite relatively low prices, because the cost to develop natural gas from shale formations has fallen dramatically in recent years, Hoops said. Gas from shale formations has an average break-even cost of about $4.22 per MMBtu, down sharply from the average break-even cost of approximately $12 per MMBtu only two years ago, he said.
Break-even costs to develop tight oil formations with natural gas liquids (NGLs) have fallen to about $57 per barrel today, or about $8 per MMBtu on a gas-equivalency basis. By contrast, Hoops noted, break-even costs for oil with NGLs were between $18 and $20 per MMBtu in 2014.
He emphasized these estimates were for new development, not currently producing properties. Break-even costs for producing properties were much lower than properties still under development, Hoops added. Break-even costs for producing properties are lower than acreage under development because of the large backlog of drilled but uncompleted wells, the high-grading of properties (basically, companies only drilling their best prospects) and the availability of low-cost financing. The webinar was held on the same day the Federal Reserve increased interest rates by one-quarter of a percentage point, and Hoops predicted financial costs for wells under development would be higher in 2017 than they were in 2016. He also said he thinks oilfield services costs will increase in 2017 and the next several years after.
However, Hoops flagged a few actual and potential bumps on the road ahead, namely project delays and cancellations of interstate pipelines that developers planned to build to carry gas from the Marcellus and Utica shales to markets in the New England, the Northeast and the Mid-Atlantic regions. Specifically, he mentioned:
Turning to coal, Hoops forecast continued declines in consumption for power production and flattening prices going forward, as low gas prices and tighter environmental regulations push power plant owners to continue to close coal-fired generating capacity.
Stable low prices for gas will continue the Power Industry's years-long "dash to gas" trend, ABB analyst Patrick Ma said: "Gas is still the dominant fuel for new additions throughout the (25-year) forecast. We see about 427 gigawatts (GW) of gas-fired capacity being added to the North American generating fleet over the next two and a half decades. About 55% of this new gas-fired generation will be combined-cycle (units)."
Roughly 140 GW of new renewable generation also will be brought online between 2017 and 2014, Ma predicted, while there will be scant new coal and nuclear generation added by 2041. In fact, coal and nuclear generation will experience significant retirements over the next 25 years. Coal generation is expected to shrink by about 76 GW by 2041, while nuclear generation will contract by about 62 GW by that year. Nuclear generation retirements around 2030 will push gas-fired capacity additions upward, he forecast.
Ma also noted that utilities' demand-response and energy-efficiency programs, coupled with the rise of distributed generation, mainly rooftop solar, has sharply reduced electric load growth in recent years, thus reducing the need for future electric generation additions. North American electric load growth was about 1.7% in 2008, but this year load growth has fallen to about 0.7%.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
Notably, ABB's current price forecast for gas is significantly below the firm's prior semi-annual forecast, released this spring. In that earlier forecast, ABB saw gas prices rising from about $3 per MMBtu in 2017 to $4 in about 2020, $5 in the late-2020s and $6 in 2036, all measured in 2016 dollars. In its current reference case scenario, again measured in 2016 dollars, the firm sees Henry Hub prices falling steadily from $3 per MMBtu at the start of 2017 to about $2.75 in 2019, before rising modestly and slowly to about $3 in the late 2020s. These prices also are significantly below Henry Hub futures prices on the New York Mercantile Exchange (NYMEX), as well as the Energy Information Administration's 2016 Annual Energy Outlook, released earlier this year.
The ABB forecast did not include projected natural gas production. However, the speakers on the December 14 webcast left no doubt that production would be growing. Gas production will increase, despite relatively low prices, because the cost to develop natural gas from shale formations has fallen dramatically in recent years, Hoops said. Gas from shale formations has an average break-even cost of about $4.22 per MMBtu, down sharply from the average break-even cost of approximately $12 per MMBtu only two years ago, he said.
Break-even costs to develop tight oil formations with natural gas liquids (NGLs) have fallen to about $57 per barrel today, or about $8 per MMBtu on a gas-equivalency basis. By contrast, Hoops noted, break-even costs for oil with NGLs were between $18 and $20 per MMBtu in 2014.
He emphasized these estimates were for new development, not currently producing properties. Break-even costs for producing properties were much lower than properties still under development, Hoops added. Break-even costs for producing properties are lower than acreage under development because of the large backlog of drilled but uncompleted wells, the high-grading of properties (basically, companies only drilling their best prospects) and the availability of low-cost financing. The webinar was held on the same day the Federal Reserve increased interest rates by one-quarter of a percentage point, and Hoops predicted financial costs for wells under development would be higher in 2017 than they were in 2016. He also said he thinks oilfield services costs will increase in 2017 and the next several years after.
However, Hoops flagged a few actual and potential bumps on the road ahead, namely project delays and cancellations of interstate pipelines that developers planned to build to carry gas from the Marcellus and Utica shales to markets in the New England, the Northeast and the Mid-Atlantic regions. Specifically, he mentioned:
- Delay of the Constitution Pipeline, which is scheduled to bring up to 632 million cubic feet of gas per day (MMCF/d) of gas to New York
- Shelving, perhaps indefinitely, of the Northeast Energy Direct (NED) pipeline, which would have brought between 750 MMCF/d and 2.5 billion cubic feet of gas per day (BCF/d) to the Northeastern U.S.
- Shelving of the Access Northeast Pipeline, slated to transport up to 950 MMCF/d, pending a decision from the Massachusetts Supreme Court
- Significant rerouting may delay the operational date of the Atlantic Coast Pipeline, which is expected to transport up to 1.5 BCF/d of gas to Virginia and North Carolina by 2019
- Potential delays in the Mountaineer Express pipeline project, which is scheduled to transport up to 2.7 BCF/d to the Midwest by 2018, also due to rerouting.
Turning to coal, Hoops forecast continued declines in consumption for power production and flattening prices going forward, as low gas prices and tighter environmental regulations push power plant owners to continue to close coal-fired generating capacity.
Stable low prices for gas will continue the Power Industry's years-long "dash to gas" trend, ABB analyst Patrick Ma said: "Gas is still the dominant fuel for new additions throughout the (25-year) forecast. We see about 427 gigawatts (GW) of gas-fired capacity being added to the North American generating fleet over the next two and a half decades. About 55% of this new gas-fired generation will be combined-cycle (units)."
Roughly 140 GW of new renewable generation also will be brought online between 2017 and 2014, Ma predicted, while there will be scant new coal and nuclear generation added by 2041. In fact, coal and nuclear generation will experience significant retirements over the next 25 years. Coal generation is expected to shrink by about 76 GW by 2041, while nuclear generation will contract by about 62 GW by that year. Nuclear generation retirements around 2030 will push gas-fired capacity additions upward, he forecast.
Ma also noted that utilities' demand-response and energy-efficiency programs, coupled with the rise of distributed generation, mainly rooftop solar, has sharply reduced electric load growth in recent years, thus reducing the need for future electric generation additions. North American electric load growth was about 1.7% in 2008, but this year load growth has fallen to about 0.7%.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
