What a difference a decade makes! In my previous positions and early into my tenure here, natural gas was a formidable force. Careers were sometimes made or squashed on the accurate predictions for purchasing natural gas commodities. Back in October 2006, my editorial discussed that uncertainty and what to do about it.
Flash forward to last October, and Barry Ashby’s column discussed the fact that the U.S. is now the world’s largest producer of natural gas. Throughout those years, we have periodically discussed the shifting natural gas supply and the impact and importance of fracking.
In spite of the fact that natural gas pricing is less volatile, in our industry we are still curious about its future because of its importance to our businesses. A report from McKinsey & Co. caught my eye recently, and here are their thoughts about natural gas through 2030.
They expect to see the role of natural gas shift as the number of coal retirements increases and renewables become a larger part of the energy mix. Their five key findings are:
- Gas demand to 2030 is expected to grow modestly.
- Gas supply to 2030 will be dominated by Appalachia and the Permian Basin.
- Price decline is not likely to affect North American ability to meet demand.
- Increasing shale-gas supply will keep prices below $2.8/MMBtu.
- Permian production will supply roughly 25% of the market by 2030.
The Appalachian and Permian sources have accounted for over 70% of the world’s new gas supply since 2012. Check out the link and QR Code at the end of this column to read more about it or to request more information.
Another recent article helps us understand how all of this has come about. It said, “Since the shale revolution took flight in 2008, U.S. natural gas production has soared 60% to over 90 Bcf/day. That’s a whopping 25% more than what second-place Russia yields. This U.S. shale surge has led to dramatically lower gas prices (we are currently experiencing the lowest summer prices in over 20 years) and a shift in U.S. manufacturing (from oil to gas) and electricity (from coal to gas). Indeed, natural gas this year will supply nearly 40% of U.S. power, about double what it provided before the shale revolution.”
This relatively sweeping change has resulted in some positive swings in our atmosphere because natural gas emits 30% less CO2 than oil and 50% less than coal. As a result, the U.S. is reducing its CO2 emissions faster than any other country on Earth. U.S. emissions are currently the lowest they have been since 1985 in spite of increasing demand.
A rapidly expanding U.S. natural gas export business (via LNG) will supply this cleaner natural gas to the developing world. The U.S. is now the world’s third largest LNG supplier, and this new supply gives the world an alternative to Russia. We currently supply 12-14% of the world’s LNG, and the International Energy Agency expects that we will surpass Qatar and Australia to become the largest LNG exporter by 2024.
An article in the June issue about the state of the natural gas market rounds out the discussion. The author, Alex Paciga, asserts this about where we have been: “Natural gas imports into the U.S. have been declining since 2007 due in large part to ramping U.S. natural gas production. The U.S. became a net exporter for natural gas in 2017.”
Paciga indicates that economic growth will continue to affect the demand of natural gas. Relative to exports, he said, “The U.S. will launch an additional three export terminals and more than double its current LNG export capacity to 8.9 Bcf/day by the end of this year.”
As you seek to track the natural gas market, keep in mind the three factors discussed by Paciga: weather-related volatility, environmental impact and economic factors. These will continue to play a major role in the energy markets, including natural gas.
See the McKinsey & Co. report here https://mck.co/2k9WNlH.