In the U.S., Big Gas Following Footsteps of Big Oil

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--U.S. natural gas companies followed the path of their oil-focused counterparts by going all in on production, boosting the nation's potential as a major player in the liquefied natural gas (LNG) market.

Chesapeake Energy Corporation (NASDAQ:CHK) (Oklahoma City, Oklahoma) said in its quarterly earnings report on Tuesday that it was strengthening its core focus on the Marcellus and Haynesville shale basins, among the largest U.S. natural gas reserves.

The U.S. Department of Energy puts the Marcellus Basin in with the Utica Basin because of geological overlap, calling it the "Appalachian shale." Combined, it is the largest U.S. gas reserve, with an expected production rate of 35.3 billion cubic feet per day (Bcf/d). The mighty Permian is ranked second with output of about 20 Bcf/d, while the Haynesville should churn out an average of 15.4 Bcf/d, should federal forecasts for August prove accurate.

Nick Dell'Osso, the president and chief executive officer at Chesapeake, said both reservoirs are low-cost basins that are in tune with the energy transition by way of "advantaged emissions profiles." That means a move away from other plays, such as the less-prolific Eagle Ford.

"Simply put, we are tightening our strategic focus around our best rock, best operations and lowest emissions footprint to generate the most attractive and sustainable capital returns in the industry and be the leader in answering the call for delivering the affordable, reliable, lower-carbon energy the world needs," he said in a statement.

The world indeed needs more natural gas. Apart from the obvious geopolitical repercussions, the Russian invasion of Ukraine has upended global commodity markets. The Kremlin is accused of using its vast natural resources to bolster its leverage on the global stage. The European market is heavily dependent on Russia for its natural gas and a vast network of Soviet-era pipelines feeds that market from Ukraine.

Because of the war, global storage levels are dwindling as major consumers look for alternatives. Along with Qatar and Australia, it is the United States that is filling much of the void. Last month, the federal government said it would indeed be the United States that leads the world in exports of liquefied natural gas, if it isn't already.

LNG offers far more freedom of movement than piped products, though infrastructure on both ends of the supply chain can be costly. Germany, which has a bit of a mixed record on who it supports in terms of natural gas, has now said it would bolster its LNG footprint for the sake of energy security.

That's a win for the U.S. energy sector. Norwegian consultant group Rystad Energy estimates the United States is already the clear leader in LNG exports and that reputation got more support from some of the main domestic players this week.

Click on the image at right for a U.S. Energy Information Administration chart showing the growth in U.S. LNG exports from January 2016 to January 2022.

Houston-based Tellurian Incorporated (Houston, Texas) this week said it increased its own production by about 47% compared to the first quarter of the year. The company said it was looking at adding to its portfolio by seeking agreements covering nearly 5,000 net acres and some 44 gas-producing wells.

But it is LNG where Tellurian can do more. Its proposed Driftwood facility, once completed, would add to the growing LNG export footprint in PADD 3, the district covering much of the U.S. Gulf Coast. Subscribers to Industrial Info's Global Market Intelligence (GMI) Oil & Gas databases can click here for a list of detailed Driftwood LNG project reports and click here for the plant profile.

While the United States is leading the world in LNG exports and in production, as the world's largest economy, it is also a major consumer. Rystad estimates gas-for-power demand was around 40 Bcf/d in July, a demand strain that would require two Haynesvilles to satisfy.

"With the uncertainty of Russian gas supply and resistance from some EU members towards gas consumption cuts, more U.S. LNG exports are expected to flow to Europe, although a downside is expected during the U.S. hurricane season," Rystad added.

This year's Atlantic hurricane season is expected to be busy, but so far so good. Meanwhile, one of the busier terminals--Freeport--is hobbled by unexpected maintenance.

But the U.S. seemingly shall overcome. Compared with the second half of 2021, U.S. LNG exports have increased by 12%, averaging 11.2 Bcf/d.

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