WHITE PAPER

US GAS AND LNG MARKETS

CONTINUING CHALLENGES ARE FORECASTED
INTRODUCTION
Even though drilling targeting natural gas has declined to a multi-year low, US gas production
continues to increase as E&P companies grow oil production and with it, oil-associated gas.
As noted by the Energy Information Agency (EIA), a new daily gas production record of 92.8
BCF per day was reached on August 19, 2019, up from about 72 BCF/day in January 2018.
This substantial increase occurred even as the price of natural gas continued to slide, falling
from approximately $3.20 in early 2018 to less than $2.30 at the end of August 2019. Since
that time, prices have rebounded somewhat with the normal seasonality of the markets, trading
in the $2.50 - $2.70 range in September, though they remain well below the same period in
most previous years. Further, according to EIA forecasts1, little improvement is expected for the
remaining months of 2019 and early 2020 as storage volumes are within normal ranges and
production continues to keep pace with demand.

1) https://www.eia.gov/outlooks/aeo/data/browser/#/?id=13-AEO2019&cases=ref2019&sourcekey=0

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 US Gas and LNG Markets - Continuing Challenges are Forecast A ComTechAdvisory Whitepaper

A CHANGING DEMAND MIX FOR US

NATURAL GAS
Though there are numerous factors that impact supply and demand for natural gas in any
particular market, given the continuing increases in oil associated natural gas production in the
US, the variables that will most affect prices will clearly be on the demand side for the foreseeable
future. In this market, demand is driven by five components - residential & commercial demand
(primarily for heating), industrial demand (manufacturing processes including combined cycle
power generation and petrochem feedstocks), power generation, pipeline exports and LNG
exports.

Residential & commercial demand is generally weather
driven. Comparing Jan–June 2018 to the same
period in 2019, residential & commercial demand
increased 3.3%, primarily due to colder temperatures
in the Northeast US. However, variances in seasonal
demand from year-to-year generally even out and any
changes from “normal” demand are usually absorbed by
underground gas storage. Additionally, any increased
demand driven by economic growth or new building
construction is expected to be offset by mandated
improvements in energy efficiency. As such, the EIA
expects little growth in natural gas use in this sector,
forecasting only a 0.2% increase through 2050.
Industrial demand generally follows economic growth
patterns - an expanding economy will consume more
natural gas for manufacturing and processing fuels &
feedstocks. Overall though, current forecasts indicate
growth through 2050 is expected to be slightly below
1% per year, with total demand from the industrial sector
expected to grow to 37 bcfd in 2050, an increase of
about 9 bcfd over 2019.
The other three primary components of demand - power
generation, pipeline exports (primarily to Mexico) and
LNG exports - have become the predominate drivers
of current and future demand growth and will have
the greatest impact on prices and new infrastructure
investment over the next several decades.
With increasing supplies of solar and wind renewable
power flooding the US market and the continuing
retirement of coal-fired generation, more gas-fired
generation will be required to provide baseload
generation and ensure grid stability. In total, gas burned
for power generation will account for about 39% of the
overall power mix in the US in 2050, up from 34%
in 2019, resulting in an 3.6% increase in natural gas
demand for power generation - from 28.5 bcfd in 2018
to 33.3 bcfd in 2050.

© Commodity Technology Advisory LLC, 2019, All Rights Reserved.

US Gas and LNG Markets - Continuing Challenges are Forecast A ComTechAdvisory Whitepaper

Pipeline exports are expected to grow as well. Though
some natural gas is exported to Canada via pipelines in
New York and Michigan, those volumes are more than
offset by Canadian imports in the western US. Mexico
has become an increasingly important market for gas
exports - helping to alleviate a backlog of supply in the
southern US, particularly in West Texas. With the recent
liberalization of the Mexican gas markets, US natural gas
is increasingly suppling power generation and industrial
demand in that country. Though exports to Mexico have
grown rapidly in the last couple of years - from 2.0 bcfd
in 2014 to 4.6 bcfd in 2018 - current forecasts expect
demand for US gas to moderate as more Mexican
domestic supplies are brought on-line and construction
of new power plants slows. Overall, the EIA forecasts
pipeline exports into Mexico will top out at 7.0 bcfd by
2050.
LNG exports are expected to have the greatest impact
on the future supply & demand balance as several new
liquification and export facilities are completed and
brought online over the next 10 years. In fact, the EIA
projects that LNG exports will grow from 2.8 bcfd in
2018 to over 13.7 bcfd in 2030. However, after 2030,
current EIA forecasts note that US-produced LNG is
expected lose its price advantage compared to other
global suppliers (as US domestic gas prices increase
on tightening supply) and anticipates little or no growth
in LNG exports from 2031 to 2050.
In all, total US domestic demand (net of exports) for
natural gas is expected to grow from 29.34 TCF/year
to 35.0 TCF/year in 2050. Factoring in exports, US
domestic natural gas production will need to increase
from 29.5 TCF/year to 43.4 TCF/year (or almost 119
BCFD) in order to maintain market equilibrium.

LOOKING CLOSER AT LNG

In the 1990’s, most forecasts indicated that the US would require significant new quantities of
imported oil and gas, and as such, several LNG import facilities were constructed along the Gulf
Coast and in the Northeastern US to supply natural gas to the US markets. However, with the
advent of long-lateral horizontal drilling techniques and massive hydraulic fracturing, vast new
supplies of both oil and gas were opened for development in the tight sand and shales deposits
across the US, leading to the country becoming a net exporter of both oil and gas in the last
couple of years.

Simultaneously, the expanding global “green” movement markets where coal is being rapidly retired and in the
is increasing demand for natural gas to replace, in part, Asian markets, where the pace of construction of new
coal for power generation. Coal to gas switching is not coal-fired generation is slowing, despite increasing
only forecast to grow in the US, but also in the European demand for power to support rapid economic growth. As

© Commodity Technology Advisory LLC, 2019, All Rights Reserved.

 US Gas and LNG Markets - Continuing Challenges are Forecast
such US import facilities that were designed to accept
LNG from overseas shippers have been idled and
several have been “turned-around” as LNG liquification
and export terminals. In total, more than a dozen new
US LNG export facilities have been proposed, with 8
either complete or under construction, enough current
capacity to supply more than 25% of the total global
demand for LNG.
With the recent commissioning of Freeport LNG’s Train
1 in August of this year, six LNG liquification/export
facilities are currently operating in the US, with two
others under construction. These include:
• Sabine Pass (Louisiana) - began operation in early
2016 and currently has 5 trains running with a total
baseload capacity of 2.95 BCF/day. The facility is
also planning an additional 6th train, though a final
investment decision has not been made.
• Cove Point (Maryland) - began operations in early
2018 and has a capacity of 0.69 BCF/day.
• Elba Island (Georgia) - launched commercial
operations in October with a single relatively small
train running producing .20 BCFD of LNG. Nine
additional trains of similar size are in various stages
of commissioning and/or under construction and
will be phased into production over the next several
months to a year. When complete, the entire facility
will produce about 1.5 BCFD of LNG.
• Corpus Christi (Texas) - currently has two trains in
production, producing about 1.2 BFCD of LNG.
A third train is under construction, bringing the
facilities capacity to 1.8 BCFD by mid-year 2021.
• Cameron LNG (Louisiana) - train 1 began production
in July 2019, and two additional trains are under
construction. Once in full production around mid-
© Commodity Technology Advisory LLC, 2019, All Rights Reserved.
A ComTechAdvisory Whitepaper
year 2020, the facility will produce about 1.8 BCFD
of LNG.
• Freeport LNG (Texas) - train 1 began operation in
August 2019 and two additional trains are under
construction. With a total capacity of 2.0 BCFD,
the plant will reach full production around mid-year
2020. A fourth train has been approved and is
awaiting FID.
• Golden Pass (Texas) - a buildout/turnaround of
an existing LNG import facility along the Sabine
River in Texas. With 3 trains under construction, the
facility will have a total capacity of 2.0 BCFD when
fully operational in 2025
• Calcasieu Pass (Louisiana) - recently reached a
positive final investment decision and is slated to
begin producing LNG sometime in 2023. With 10
trains, the plant is expected to produce 1.3 BCFD
of LNG.
In addition, there are six other facilities currently
permitted and planned for the Gulf Coast region, though
some of these may not ultimately move forward if they’re
unable to secure long-term purchase commitments in
an increasingly competitive LNG market. Though a
couple are nearing final investment decisions, most are
battling for market share with new plants proposed or
under construction in Qatar, Russia and other countries
positioned along the Asia Pac Rim that are better
positioned geographically to serve the fast-growing
markets in the region. These alternative suppliers have
led the EIA to project that US LNG may no longer be
price competitive after 2030, as US natural gas prices
are expected to increase on rising domestic demand
(primarily for industrial use and power generation) and
slowing production growth.
US Gas and LNG Markets - Continuing Challenges are Forecast A ComTechAdvisory Whitepaper

MAINTAINING PROFITABILITY IN A
CHANGING MARKET
The US natural gas markets are the most complex in the world, with hundreds of thousands of
pipeline miles, evolving areas of production, local or regional supply/takeaway imbalances and
a changing demand pattern. And, with the market in an almost persistent oversupply situation,
natural gas prices are near record low levels and trading margins continue to shrink.

However, pockets and short periods of volatility do
occur in areas where infrastructure constraints have
resulted in an oversupply (such as the Permian Basin
or Marcellus region) or during times of peak demand
(such as Artic fronts moving through densely populated
markets). Unfortunately, these events are difficult to
plan for and generally increase risks for traders and
producers in the affected areas.
Profitably managing business for producers, traders
and industrial consumers is more difficult than ever, and
requires a broad market view that encompasses not only
market prices but also the wide range of variables that
impact natural gas supply, demand, and transmission.
In this market, participants need more coordination
between operations and commercial activities and
better market insights to anticipate market changes and
make informed decisions in order to lock-in margin or
ameliorate risks. As the number of data sources, both
external and internal, continue to grow, a systematic
approach to identifying actionable information within the
tsunami of data is required…simply relying on a singular
view of the market, like provided by the information
contained with your ETRM solution, is akin to looking
only at your rearview mirror while driving…you only know
where you’ve been and will be guessing at where you
are going in the future.

© Commodity Technology Advisory LLC, 2019, All Rights Reserved.

ABOUT EKA

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