Natural Gas Industry Poised for Demand Growth, Even While Weathering Downturn

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Written by Andrea Moede for Industrial Info Resources (Sugar Land, Texas)--The explosion of natural gas plays has revolutionized the energy sector in America over the last 10 years. Geologic shale formations that were long recognized as fossil-fuel laden remained untapped until horizontal drilling and hydraulic fracturing became viable exploration options.

These shale drilling technologies have brought on the plays of Barnett and Eagle Ford (Texas), Haynesville (Louisiana & Texas), and Marcellus/Utica (Pennsylvania, Ohio, West Virginia), to name a few. With production booming, projections estimate that the U.S. will become a net exporter of natural gas by mid-2017.

As these innovations have opened up vast natural resources in America, they have also brought a host of other problems that now need to be solved. Market forces are struggling to handle the glut of natural gas that is now available, and prices are noticeably down. Who could have imagined a time where production was going so well in the U.S. that the struggle has now become what to do with all of it?

The Gulf Coast plays have less of an issue, due to their close proximity to refining facilities and various transportation routes. In addition to current infrastructure, massive projects are under way to expand chemical processing capabilities in the region, in order to capitalize on the low price of natural gas. Additional natural gas demand from ammonia, methanol and ethylene plants currently under construction will amount to 1.9 billion cubic feet per day (Bcf/d) by 2020.

The play being affected most by the current levels of oversupply is that of the Marcellus/Utica in the Appalachian Basin. The massive Marcellus formation, along with the Utica which lies a few thousand feet below the Marcellus, have accounted for over 85% of the natural gas growth in the U.S. since 2012. Due to this outstanding performance though, the current pipeline infrastructure has not been able to keep up. This has left area producers selling at a discount that is below the national benchmark.

This trapped supply in the Northeast may be seeing a new resurgence due to several emerging factors. In June, Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands) finalized its decision to build a new petrochemicals plant, valued at $10 billion, in Monaca, Pennsylvania for this very reason. The ethane cracker plant complex project is scheduled to break ground in 18 months, with construction to be completed by 2020.

This news may help the development of another cracker complex currently being contemplated on a site in Shadyside, Ohio. Thailand-based PTT Global Chemical PCL (Bangkok) has been investigating this option, and Shell's investment may be the final push. There are operating efficiencies to be had in running two cracker plants in the same region, and this could be the beginning of a burgeoning petrochemicals industry in the Appalachian Basin.

In addition to these new opportunities, another factor that should provide an outlet for the Marcellus/Utica production is the coming online of additional export capabilities. Final phases of new export capacity to Mexico have recently been completed on PEMEX's (Mexico City) Los Ramones pipeline. Exports to Mexico are now projected to increase by another 1.8Bcf/d by 2020. Liquefied Natural Gas (LNG) exports (shipping natural gas in liquid form overseas) are also expected to rise over the next three years, as construction of new supply facilities is under way.

In total, natural gas demand growth is projected to grow by 15.7 Bcf/d by 2020.

Click the icon at right for a graph showing US natural gas cumulative demand growth 2016-2020.

The uptick in demand because of these factors should send natural gas prices back up, as long as there are no political roadblocks. One situation that needs to be monitored is the political climate of Pennsylvania, where most of the production of the Marcellus/Utica is occurring. The state elected a new Democratic governor, Tom Wolf, last year, replacing Tom Corbett, who was a strong ally to the industry. While insistent that he supports shale drilling and wants to see it grow, Wolf has also said that he wants drillers to pay their "fair share" and is pursuing implementation of a severance tax on production.

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/.