The Golden Age of Gas Has Arrived for the United States

DRBC fracking ban - Tom Shepstone ReportsTom Shepstone
Shepstone Management Company, Inc.

 

Energy Information Administration data for 2018 shows the Golden Age of Gas has truly arrived for the U.S. with production, consumption and exports all up.

What do you call a quadruple win? A “quadfecta” maybe? Well, that’s what in happened in 2018 for the natural gas industry and, especially, landowners with natural gas resources. Production was up. Consumption was up. Prices were up. Exports were up. That’s what the Energy Information Administration (EIA) tells us. The International Energy Agency, in 2012, saw it coming when it talked about a coming “Golden Age of Gas” and it’s now fully arrived in the United States.

Here’s the EIA chart that says it all:

Golden age of Gas

Source: U.S. Energy Information Administration, Natural Gas Monthly and Short-Term Energy Outlook, and Thomson Reuters

Everything is up, but here’s the story on production:

When final data become available in the coming months, EIA expects that U.S. natural gas production will have reached record levels in 2018. Through the first ten months of 2018, dry natural gas production in the United States was 11% higher in 2018 compared with the same period in 2017. Growth has been driven by production increases in the Appalachian Basin in the Northeast, the Permian Basin in western Texas and New Mexico, and the Haynesville Shale in Texas and Louisiana.

Then, there is the equally good news on consumption:

Domestic consumption of natural gas also increased in 2018. This rise is largely driven by natural gas-fired plants replacing coal-fired plants in the electricity fuel mix, with consumption 17% higher than 2017 levels through the first ten months of the year. Increased industrial sector investment and the need for space heating and air conditioning contributed to annual growth in natural gas consumption across the industrial (5%), commercial (12%), and residential (16%) sectors during the same period.

It’s exports, though, that deliver the best news:

Continued growth of U.S. LNG exports and U.S. pipeline exports to Mexico resulted in the United States exporting more natural gas than it imported for the second year in a rowExports of natural gas to Mexico by pipelineexceeded 5 Bcf/d in July 2018 following expansions in cross-border pipeline capacity. Capacity additions at the Sabine Pass LNG export facility in Louisiana and the start of commercial operations at the Cove Point LNG facility in Maryland contributed to the expansion of LNG exports.

Golden Age of Gas

Source: U.S. Energy Information Administration, Natural Gas Monthly and Short-Term Energy Outlook

Finally, there is what has happened with pricing. Natural gas is still one heck of a bargain for urban consumers at the other end of the pipeline, but the industry and landowners needed a more sustainable price and they got it in 2018:

Prices increased gradually through much of the year, with significant price increases during October and November, before declining at the end of December. Growing U.S. production and low temperatures during the winter months supported increased natural gas consumption through 2018.

There were price spikes that unduly impacted places such as New England, but the fault for that, of course, lies with New England itself and, in particular, the naked dictatorship of New York Emperor Andrew “Corruptocrat” Cuomo:

During January 2018, natural gas spot prices spiked in the Northeast as a period of prolonged cold weatheraffected much of the eastern United States. Spot prices at the Algonquin Citygate, which serves Boston-area consumers, and the Transco Zone 6 NY hub, which serves New York City, averaged $15.52/MMBtu and $17.67/MMBtu, respectively, in January.

Golden Age of Gas

Source: U.S. Energy Information Administration, Wholesale Electricity and Natural Gas Market Data

Daily prices reached as high as $125/MMBtu at Algonquin Citygate and $175/MMBtu at Transco Zone 6 NY on January 5. High demand for natural gas to provide space heating contributed to a record-high weekly withdrawal from U.S. storage, totaling 359 billion cubic feet (Bcf) for the week ending January 5.

What’s very rewarding, though, for Northeast gas producers and landowners is this (emphasis added):

Since 2014, natural gas spot prices in Appalachia have traded at a discount to Henry Hub because pipeline capacity to flow natural gas to other regions has been limited. The spread in natural gas spot prices between the Henry Hub in Louisiana and the Appalachian region continued to narrow in 2018Pipeline capacity buildout in the Appalachian region continued during 2018 to bring natural gas to demand centers outside the region, decreasing the price difference between the two regions.

Yes, it is the Golden Age of Gas for the United States and the Northeast, in particular. Time to celebrate!

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