How to be the hunter instead of the hunted: by Roberto Healy for Gelber & Associates
“Amazon buys Whole Foods”. “Grocery’ stocks tumble”. Can grocery stores, as we’ve known them for the past 20 years, survive? In today’s new economy, one singular event can produce a sea of change that very rapidly creates losers and winners. Ongoing detailed planning and analyses are critical. Also, an external assessment of the planning is healthy to ensure insightful findings and change driving recommendations going forward. This is true in energy just as it is with grocery stores.
The natural gas market has been in the midst of some radical changes. The production of gas from shale formations has changed the industry and will continue to do so over the next decades. These new supplies of shale gas have affected the midstream industry, with major lines reversing flow, loss of demand in major long-haul lines, new pipelines required to move gas to markets, and basis differentials inverting to a changing new normal. Some transportation companies thrived while others suffered greatly. The abundance of low-priced natural gas has already produced large investments in production, gathering system, new pipelines and exports. Most observers would agree that this effect will accelerate in the coming decade.
Demand for gas in the US alone is expected to grow substantially, by some estimates as much as 50% over the next twenty years. The expansion of greenfield development of ethylene, methanol and other industrial facilities is well under way. Export pipelines have been sprouting across the border at an unusual pace moving gas to Mexico for power generation and industry. Mexico alone will represent as much as 10 Bcf/d of gas. LNG export plants are proposed all over the Gulf Coast and the existing import facilities in Atlantic that are being converted to liquefaction. Exports as LNG could reach over 10 Bcf/d in the next few years. The abundance of natural gas should propel natural gas as the fuel of choice for electric generation. The demand for gas for generation could grow by 10 Bcf/d in the next twenty years.
Supply of natural gas has seen a dramatic shift resulting from the shale revolution. Now, with a new federal executive administration more supportive of oil and gas, and with the stated goal to attain energy dominance through less onerous regulations, it will likely lead to an even greater supply of gas. Furthermore, other plays like coal-bed methane, tight sands, ultra-deep Gulf, and shallow water will likely see a revival and faster growth. The size and location of these new supplies will again be at least somewhat disruptive to midstream, even if the likely incremental production in the mid-term would tend to be from those reserves in the proximity of existing infrastructure. Some analysts believe the natural gas industry could double production within 10 years. The recoverable resource base is enormous and growing, technology is improving, risk capital appears abundant and the infrastructure to serve domestic and export markets can be deployed in time, and the fuel is attractive to users.
Demand growth and new production regions would require an increment of up to 2 Bcf/d per year in pipeline capacity in the coming years. That very large number of new supplies will exacerbate the current changes in supply options for many buyers and sellers.
The above graphic depiction of the major projects in the Northeast illustrates the major changes headed to this market. With even more smaller connectors and laterals, the natural gas market will change substantially. Understanding the risks and rewards product of these changes is critical to all market participants.
These indicators tell a story of growth in all segments of the industry. Producers, gathering system and treatment facility operators, midstream pipelines, marketers, LDCs, power generators and buyers, industrial, commercial and residential customers, investors and financing entities will all be affected. In times of rapid and deep changes, there are always players that benefit and others that will be at risk.
Gelber & Associates has skilled professionals who understand the changes overtaking today’s energy midstream. Rob Healy is an experienced user of the GPCM model, which is a unique tool to evaluate and understand today's rapidly evolving natural gas markets. With GPCM and other sophisticated models, Gelber & Associates prepares regional and national supply, demand, and pipeline delivery models, feasibility studies and analysis. Our scope of operation includes Mexico, the United States, Canada, Latin America, South America, parts of Asia and Europe. Our range of expertise includes natural gas, NGLs, power, transportation and transmission, crude oil and oil products, and LNG.