January 2018, Vol. 245, No. 1

Features

Gulf Coast Likely Natural Gas Export Hub for Years to Come

The U.S. Gulf Coast is expected to be a crude oil, natural gas and LNG export hub for years to come even as supply, demand and geopolitical swings shift market dynamics, industry consultants said at a recent conference.

At the heart of the forecast is the fact that U.S, supplies are abundant and cheap, and billions of dollars of new infrastructure is being added to link those resources to overseas destinations, particularly in Asia, Europe, the Middle East and South America. Mexico, too, has been heavily reliant on U.S. LNG and pipeline gas from the Gulf Coast.

During the USAEE/IAEE North American Ride the Energy Cycles Conference held in Houston last month, government officials, analysts and investment bankers joined industry consultants to explore how shale technology is boosting the U.S. role in global energy markets, and how the Gulf is a key focal point for those efforts.

Though Saudi Arabia, Russia, Qatar and China are vying for market position, none looks likely to have the same market clout in terms of excess supply, the experts said.

Bolstering that expectation, S&P Global Ratings issued a report on Nov. 13 that forecasts broad stability in the U.S, oil and gas industry over the next several years. Natural gas prices around $3/MMBtu are reflective of that view.

There is ample natural gas supply in the U.S., particularly from the Northeast, where the prolific and low-cost Marcellus and Utica shale plays will continue to supply much of the growth in natural gas demand, the report said. Coal-to-gas switching, increased LNG use, and exports to Mexico are helping to drive that.

The ratings agency said that companies with strong acreage positions in the Permian, which spans West Texas and southeastern New Mexico, should see the largest growth in 2018 due to its low breakeven drilling costs and double-digit returns, even with $50/b crude prices. “Outside of the Permian, we forecast volumetric growth in the Marcellus and Utica as construction of infrastructure projects conclude and become fully operational,” the report said.