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Gas supply growth in North America driven by Appalachia

28 June 2018

Our experts expect strong U.S. natural gas supply growth. What's driving this growth and how might it impact North American oil and gas markets? Our plays and basins experts, Reed Olmstead and Imre Kugler talk about trends and key plays in this episode of Upstream in Perspective.

Jessica Nelson
Gas product rose by more than seven bcf/d as operator stated a preference for oil-focused drilling. Do we expect that rate of growth to continue in 2108?

Reed Olmstead
We do. We saw a lot of growth last year and in 2018, we're expecting another four bcf/d tapering to three bcf/d of growth in 2019. But, in aggregate when we look all the way out to 2023, we're looking at producing 91 bcf/d by the end of December that year, so that's a lot of growth. We haven't seen, particularly in the next couple years, this type of growth for quite a while. We were stagnant for a couple of years as markets reset and the whole oil side of the story was playing out. But, we've seen a lot of growth in supply last year and in the coming ones.

There are two factors that are driving that primarily through 2023. We're looking at a lot of LNG exports coming on-stream. We've got a lot of visibility into what's coming-what's been permitted, what's broken ground and capacities. So, we see a lot of LNG exports coming on-stream in the next few years. The other aspect that's driving a lot of growth between now and 2023 is the next course to Mexico. It's going to provide a lot of relief to the Permian Basin-in particular, as we get the Mexican side of those pipes connected to what's already been constructed in the U.S. We're seeing those two things coming out strong for the next few years.

Beyond that after 2023, we're going to see a lot of power demand growth baked into our forecast. We'll continue to see a rise in gas. Suffice to say, tapering four bcf this year, three bcf/d of growth next year, and then after 2023 we're going to get a lot of kick in from that power side.

Imre Kugler
We went back to refresh some research on the IRR oil verses gas. For companies that didn't get into oil or didn't make a purchase in the Permian or somewhere else, there's a lot of pure play operators that are in the gas basins and driving production growth as well. They don't have much in the way of alternatives. There's still some growth to go in the dry gas plays.

Jessica Nelson
Will the Appalachian Basin continue to drive gas growth over the coming years?

Reed Olmstead
I think that unquestionably Appalachia, which is our minds the Marcellus and the Utica, are going to continue to be a very strong source of supply. We've got an amazing amount of gas that we can develop even under current economics there. The only thing that is hampering it is pipeline capacity. And even at that point we've got 8 bcf/d of pipeline coming on-stream over the next several years so even pipeline capacity is not going to shut it down too much. The other component that we see really driving supply growth is going to be associated gas. Mostly coming out of the Eagle Ford and the Permian Basin. We've got the Permian Basin essential doubling from where it is now. We'll get it to 15 bcf/d by 2023. So a lot of gas on that side too. When we look at Appalachia, certainly in the near term, it is one of the two most material drivers of supply. Once you get past 2023, I think we run into some headwinds.

Imre Kugler
That BCF per pipe a day you mentioned, Reed, that's sort of the last of the lower cost transportation that can get down to the Gulf Coast or the Southeast. The transports start getting expensive for expansions after that-adding another 40 or 50 cents onto its to break even. That starts changing up the supply once we get passed this next couple years of pipeline growth. That will change things in the short-term. Appalachia's in great shape.

Who's leading growth in gas production and where are they operating? Listen to the full interview with Reed and Imre in our podcast, Upstream in Perspective. Learn more about our team's forward-looking analysis of the world's most significant plays and basins.

Posted 28 June 2018

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