Natural Gas Exports Set to Soar Thanks to Appalachian Shale

Tom Shepstone
Shepstone Management Company, Inc.

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Appalachian shale production has been nothing short of phenomenal and has set the stage for natural gas exports to soar via both LNG ships and pipelines.

Yesterday, chatting with a pro-gas friend, we both remarked on the fact the solution to low prices is low prices, just as the solution for high prices is high prices. It’s basic economics, the law of supply and demand, of course, although it’s far beyond the comprehension of our fractivist friends and other enemies of capitalism to grasp. When the supply is high, the price decreases and when the price is low, demand goes up and, eventually, prices do as well. It’s a never ending search for equilibrium that consistently adapts to the votes of consumers and it’s a beautiful thing. And, now low prices are about to unleash tremendous growth in natural gas exports.

natural gas exports

The EIA gives us some insights in the story accompanying the above chart (emphasis added) showing exports are expected to absolutely soar over the next decade and remain high.

In the Reference case, both U.S. natural gas exports by pipeline and U.S. LNG exports continue to grow through 2030. LNG exports account for most of the export growth because more LNG export facilities are becoming operational and more projects are under construction. In the Reference case, EIA projects that LNG exports will almost triple, from 1.7 Tcf in 2019 to 5.8 Tcf in 2030, the equivalent of nearly 16 billion cubic feet per day (Bcf/d). LNG exports remain at this level through 2050 as U.S.-sourced LNG becomes less competitive in world markets and as more countries become global LNG suppliers.

U.S. LNG exports are more competitive when oil prices are high (as in the High Oil Price case) and U.S. natural gas prices are low (as in the High Oil and Gas Supply case) because of pricing structures that link Brent crude oil prices to LNG prices in many world markets. In the High Oil Price case, U.S. natural gas net exports reach nearly 13 Tcf by the late 2030s, most of which is LNG. Conversely, in the Low Oil Price case and Low Oil and Gas Supply case, U.S. LNG is less competitive globally and remains lower than 5 Tcf per year through 2050.

By comparison, pipeline trade of U.S. natural gas is less sensitive to changes in assumptions about domestic natural gas supply and world oil prices. Pipeline trade of natural gas is highest in the High Oil and Gas Supply case because low domestic natural gas prices reduce U.S. natural gas imports from Canada.

Another chart compares the projections:

natural gas exports

Low prices yield more natural gas exports; it’s really that simple. And, those low prices, while making it necessary for gas companies to aggressively compete in lowering costs with plenty of pain to go around, open the door to natural gas exports that are eventually going to modestly raise prices. Over time, though, the consumer is rewarded with long-term savings that are nothing short of remarkable and rural economies are invigorated by the natural gas development.

The system works in other words. It’s a system made possible in this case by the shale revolution and, especially, the success of Appalachian shale development:

EIA expects dry natural gas production to total 34 trillion cubic feet (Tcf) in 2019 once the final data is in. In the AEO2020 Reference case, EIA projects that U.S. dry natural gas production will reach 45 Tcf by 2050. Production growth results largely from continued development of tight and shale resources in the East, Gulf Coast, and Southwest regions, which more than offsets production declines in other regions. Dry natural gas production from these three regions accounted for 68% of total U.S. dry natural gas production in 2019 and, in the Reference case, 78% of dry natural gas production in 2050.

Most of the increase in dry natural gas production is coming from natural gas formations such as the Marcellus and Utica in the East region and the Haynesville in the Gulf Coast region. A smaller but still significant portion of the growth is from natural gas production in oil formations (also known as associated gas), especially in the Permian Basin in the Southwest region.

natural gas exports

What all this means is that we are in an extremely strong position to supply the EU, Mexico and Asia with natural gas they need well into the future. We are energy dominant. God bless the shale revolution!

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6 thoughts on “Natural Gas Exports Set to Soar Thanks to Appalachian Shale

    • As usual, you are wrong. The lack of distribution (pipelines) to meet demand compounded with trade policy failures and the corona virus are the problems

      Where are the renewables to replace gas, let alone keep pace with increased demand? Vineyard Wind and the former Deep Water Wind have not even started and construction yet while you make war on current production.

      I’m not the only one that see your side over promising and under delivering energy. Not having supply when people want it is far worse that having too much for a while.

  1. Relying on exports bail you out of undeveloped and distorted domestic market is not away to save the gas industry.

    The industry as a whole and the Marcellus/Utica producers, in particular, are awash in debt and over-producing gas into an already glutted market. The demand in the New England/Middle Atlantic coastal strip is obvious, as we have seen in Boston, MA and Westchester, NY. The ample supply is frustrated by bottlenecks in pipeline distribution.

    Trump’s incompetent trade policy has locked out our gas from the biggest market in Asia for over a year and the corona virus is only aggravating a bad situation. But wait, it gets worse:

    https://seekingalpha.com/news/3544520-cheniere-lng-cargoes-canceled-amid-u-s-export-glut-bloomberg

    Here are a few items from the article:

    “A buyer of liquefied natural gas has canceled two shipments from Cheniere Energy, Bloomberg reports, as a global glut hits prices.”

    “Cancellations of U.S. cargoes have been highly anticipated amid the outlook on global prices, and the latest news could be an early sign that global oversupply is poised to hit the U.S. gas market …”

    “… China has not directly imported any U.S. cargoes in more than a year due to trade tensions …”

    From Yahoo Finance more on the same subject:

    https://finance.yahoo.com/news/lng-buyer-cancels-cargoes-biggest-224207808.html

    “More gas-fired power plants would have to be built in the U.S. and abroad to ease the current supply glut, said Campbell Faulkner, chief data analyst for commodities broker OTC Global Holdings.”

    “Prices globally are converging and until there is a boatload of new generation built domestically and abroad, there is just simply not much room in the market” for more gas, he said. LNG, once vaunted as a savior for the U.S. gas market, “looks to be a damp squib,” he said.”

    https://seekingalpha.com/news/3538776-u-s-lng-exporters-face-risk-of-production-cuts-bloomberg

    “Faced with the prospect of being unable to even cover their shipping costs, customers such as commodity trading houses may simply refuse to load U.S. cargoes, which could force LNG export terminal operators to “shut in” production as their storage tanks fill up, causing a serious blow to the young LNG industry in the U.S.”

    Of course if you think it is hard for our regional gas producers to make money or finance their debt with gas at less than $2.00 ($1.90 as I write this), think how hard it will be when they are forced to shut in production this spring and summer in an attempt to survive.

  2. Pingback: Energy & Environmental Newsletter: March 2, 2020 - Master Resource

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