Analysts say Marcellus and Utica shale plays in Appalachia need better infrastructure connections to supply natural gas to US Gulf Coast LNG facilities
A rise in US LNG exports in late 2020 supported a rebound in natural gas prices
New pipeline infrastructure can help boost US liquefied natural gas (LNG) exports by connecting Appalachia Basin shale plays to Gulf Coast processing facilities.
The region’s Marcellus and Utica shale formations accounted for 40% of US natural gas production in 2020, but their outlook is closely tied to demand for LNG exports.
Henry Hub natural gas spot prices averaged their lowest in decades in 2020, according to the US Energy Information Administration (EIA) – hit by a mild winter and a fall in energy demand during the pandemic – but growth in US LNG exports towards the end of the year helped spark a slight rebound.
The EIA expects Henry Hub prices to average $3.01 per million British thermal units (MBtu) in 2021, rising to $3.27 per MBtu in 2022. That compares to an average price of just $2.03 per MBtu in 2020.
Rising prices are encouraging many companies to increase drilling and completion activities, according to research group GlobalData, but without improved transport infrastructure Marcellus and Utica producers will struggle to connect with LNG processing and export facilities to the south.
“While other plays near the Gulf Coast such as the Permian Basin, Eagle Ford and Haynesville are better located to provide natural gas to meet LNG feedstock demand, the Marcellus and Utica can also play a relevant role in supplying the new LNG facilities located on the Gulf Coast – but additional pipeline capacity will be needed,” the group said.
Appalachia natural gas production grew in 2020, despite pandemic constraints
The US – which is the world’s top natural gas producer – is targeting near-term growth in its LNG export capacity, aiming to ship 8.50 billion cubic feet per day (bcf/d) this year, compared to 6.53 bcf/d in 2020 and 5 bcf/d in 2019.
GlobalData says current US LNG export capacity stands at 9.17 bcf/d, and “with current planned and under-construction projects, this value will grow to 11.97 bcf/d in 2023”.
Analyst Andrew Folse added: “For the Appalachia Basin to significantly grow production in the future it will need to gain more access in infrastructure to transport natural gas, in particular for reaching the LNG plants in the Gulf Coast.”
“In the meantime, the basin will continue to play a key role in supplying other non-LNG related natural gas demand in other US regions such as the Northeast and the Midwest.”
In contrast to the oil industry, which has been forced into huge production cuts in the face of low demand and falling crude prices, natural gas production has weathered coronavirus disruption comparatively well over the past year.
Where average US crude oil production fell 7.4% from 2019 to 2020, the EIA says natural gas output in the country dropped by 2.5% year-on-year to 90.8 bcf/d. But across the Appalachian Basin in particular, GlobalData notes that natural gas production increased from 32.19 bcf/d in 2019 to 33.44 bcf/d in 2020.
The group adds that while major oil-producers slashed their 2020 capital expenditure up to 50-60% in response to the financial upheaval caused by the pandemic, the top three producers in the Appalachia Basin – EQT, Antero Resources and Southwestern Energy – have cut their capital only by 20%, 35% and 40%, respectively.