Growing U.S. Gas and NGL Production Spur Infrastructure Buildout

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Burgeoning domestic crude oil and natural gas production is leading to growing production of natural gas liquids (NGLs), triggering billions of dollars of planned investments in gas-processing and pipeline projects, according to Shane Mullins, Industrial Info's vice president of new product development.

"The natural gas shale boom in the U.S. has brought about dramatically reduced energy prices, which have been painful for the sector, but the industry has responded with significant efficiency gains that position it to take advantage of recovering prices and production declines taking place outside of the region," Mullins told several hundred attendees at Industrial Info's 2019 Industrial Market Outlook briefing, held last month in in Baton Rouge, Louisiana.

"Efficiency gains, recovering prices and the OPEC cuts made in late 2016 have been a trifecta that has spurred an increase in domestic production of crude oil, natural gas and NGLs," he continued. "For the midstream segment, particularly for gas and NGLs, 2019 is likely to be the best year we have seen since 2014."

Mullins predicted natural gas production will grow sizably in the next few years, rising from about 80 billion cubic feet per day (Bcf/d) in 2018 to 93 Bcf/d in 2020, 99 Bcf/d in 2022 and 105 Bcf/d in 2024. As more of that gas will come from "wet" formations, NGL production also is expected to rise sharply, from about 4.5 million barrels per day in 2018 to as much as 7.5 million barrels per day in 2024.

Click on the images at right to see predictions of rising U.S. natural gas and NGL production from 2018 through 2024.

Growth of that dimension will require an equally dramatic expansion of the nation's pipeline, processing, fractionation and export liquefaction capacity. Over the next four years, Mullins told Baton Rouge Outlook attendees, he expected investments of up to $170 billion in those segments to process, transport and export the rising level of gas and NGLs. For more on the need for new gas infrastructure in the Permian, see November 28, 2018, article - Will Rising Gas Production Turn the Permian Basin into 'Marcellus West'?

He noted that sharply rising crude-oil production in the Permian Basin is bringing with it a lot of associated natural gas. He said investments of up to $100 million per month will be required to expand that region's gas midstream segment. More gas-rich formations like the Marcellus and Utica shales have been busy building new infrastructure in 2018, and that activity is expected to continue into 2019 and beyond, Mullins said.

The Marcellus and Utica shales, which has experienced explosive production growth in recent years, currently accounts for over 30 Bcf/d of gas production, about 37.5% of all U.S. gas production, according to the U.S. Energy Information Administration (EIA) (Washington, D.C.).

Click on the image at right to see a graphic of gas production from the Marcellus and Utica shales.

Sharply rising production of gas and NGLs has triggered a surge of investments in NGL processing, particularly in the Permian Basin, the Marcellus and Utica shales and Oklahoma's SCOOP and STACK plays, Mullins told the Outlook attendees. Between 2017 and 2019, construction is scheduled to begin for 13.5 Bcf/d of processing capacity in the Permian Basin. Nearly 4 Bcf/d of capacity is scheduled to begin over that three-year period in the STACK and SCOOP plays. In addition, approximately 3.3 Bcf/d of new capacity is slated to begin construction in the Marcellus and Utica shales, now known collectively as the Appalachian region.

Across the nation, he observed, roughly 8.9 Bcf/d of new NGL processing capacity is expected to begin operating this year, a sum more than double the 4.1 Bcf/d of processing facilities that began operating in 2017. Looking to 2019, Mullins said he expects developers to complete 65 processing trains with collective capability of 10.9 Bcf/d.

What sectors will be the biggest users of incremental gas production over the next few years? By 2024, over 10 Bcf/d of new demand will come from liquefied natural gas (LNG) export terminals, Mullins said. For more on the importance of LNG exports to the gas industry's future, see August 27, 2018, article - Conference: LNG Exports are the Future of U.S. Natural Gas Industry, But Big Hurdles Remain. Power generation is expected to be the second-largest demand center for gas, followed by industrial use and exports to Mexico, Mullins projected.

Click on the image at right to see the sectors with the largest demand growth for natural gas through 2025.

"In late 2017, we expected about $47 billion of gas infrastructure projects in the U.S. and Canada would begin construction in 2018," Mullins told the Baton Rouge Outlook attendees. "This sum represented only gas midstream projects: processing, fractionation, pipelines, storage and LNG liquefaction. In fact, so far this year, about $50 billion of projects. And construction is slated to begin in 2019 on another $141 billion of midstream projects."

"We don't expect all of those projects to start construction according to their current schedule," he cautioned. "If history is any guide, some projects will be delayed and some will be cancelled. We think developers will break ground on about $69 billion of midstream projects in the U.S. and Canada next year. It's a good time to be a developer of gas infrastructure projects."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 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.