Natural Gas Supply and Usage

Natural Gas Supply and Usage

Four years ago I did a report and article on whether the United States had enough natural gas to meet its needs.

The report concluded:

“The United States had ample supplies of natural gas that could last at least until 2100 based on the projected annual usage increases and projected reserves.”

Natural gas usage at the time of the report was 22.3 trillion cubic feet (Tcf) per year.

Projected increases in annual usage were as follows:

  • Converting 50% of coal-fired power plants to natural gas, 5.3 Tcf

(Based on relative thermal efficiencies of coal-fired power plants and natural gas combined cycle power plants of 33% and 55% respectively)

  • Using natural gas for long haul-trucks, 7.3 Tcf

(Replacing 54 billion gallons of diesel fuel annually)

  • Gas to Liquids (GTL) plant by SASOL, 0.2 Tcf
  • Exporting LNG from 19 export terminals, 10.4 Tcf

The article also concluded:

  • Automobile usage had several barriers, including cost, availability of fueling stations and the space used in the vehicle to store natural gas.
  • Increased natural gas usage in new chemical plants was unknown at the time.

Today’s article updates natural gas usage, including the current status of each of the identified uses.

Consumption of natural gas in the United States in 2016 was 25.3 Tcf, according to the EIA, an increase since 2011 of 2.8 Tcf.

Converting coal-fired power plants to natural gas

Since 2011, natural gas usage for power generation has increased by 2.5 Tcf per year. This included both conversions and new natural gas power plants and accounted for nearly all of the increase in natural gas usage since 2011.

72,000 MW of coal-fired power plants have been or are being shuttered, which is approximately 20% of total installed capacity in 2013.

It’s anticipated that some additional capacity will be shuttered, but not enough to reach 50% of all coal-fired capacity in MW, which would have resulted in an increase of 5.3 Tcf of natural gas consumption.

Long-haul truck usage of natural gas (LNG)

Four years ago, it was thought that LNG (liquified natural gas) and CNG (compressed natural gas) would replace diesel fuel as the fuel of choice in long-haul trucks. This could have resulted in long-haul trucks using as much as 7.3 Tcf of natural gas.

There was enthusiasm in 2013 for LNG and CNG, but that enthusiasm has waned and been replaced by enthusiasm for battery-powered vehicles.

A major supporter of using natural gas for long haul-trucks was Westport, WPRT, whose stock traded as high as $33 per share in 2013, but now trades below $3 per share.

Today, DOE reports there are only 953 CNG and 76 LNG fueling stations in the United States, about the same as four years ago.

For this reason, it’s no longer anticipated that long-haul trucks will result in a significant increase in natural gas usage.

Converting natural gas to liquids (GTL)

While the henry hub price for natural gas has remained very low, the same is true for oil, and in turn, for gasoline and diesel fuel.

This has made investments in building GTL plants prohibitive and resulted in new GTL plants no longer forecast as large users of natural gas.

Natural gas usage by industrial plants

Natural gas usage by industrial and chemical plants, such as for producing fertilizer and ethylene, is forecast by Raymond James to grow from 7.3 Tcf to 9.3 Tcf by 2020. This appears to be at the high end of such forecasts.

It suggests that industrial natural gas usage in the foreseeable future will be around 2.0 Tcf higher than in the past.

Exporting LNG from 19 terminals

Exporting LNG will undoubtedly account for the largest increase in natural gas usage.

 

Only seven export terminals, built or under construction in the United States, have been approved as of May 2017. Another four have been approved in the United States, and an additional four have been approved in Canada, but these eight are not yet under construction.

Market forces have changed substantially since 2013. In 2013 the price of LNG in Asia was linked to the price of oil and was around $17 per million BTU. Today, the price is around $7 per million BTU.

This has lowered potential profit expectations from LNG exports.

Costs, in dollars per million BTU, to obtain, liquify and transport LNG to Asia are approximately:

  • Henry hub natural gas $3.00
  • Liquefaction                   $1.25
  • Shipping                         $1,75
  • Total cost       $6.00

This cost structure would allow for an outsized profit when the price was $17 per million BTU, which more than covered the cost of building export terminals.

Today, the cost structure is far less favorable with an LNG price in Asia of $7 per million BTU. This lower price for LNG raises the question as to how many export terminals will actually be built.

Costs and prices fluctuate, but these estimates illustrate how the market has changed in four years. Europe’s market is similar, but prices for LNG in Europe are somewhat higher while the cost of shipping to Europe is lower.

The EIA forecasts that the United States will export approximately 4 Tcf per year, on average, over the next twenty years.

This is substantially less than the 10.4 Tcf that could have been exported if all 19 terminals had been built and placed into operation.

Conclusion

Future demand is less than forecast four years ago, while supply forecasts have continued to increase.

The future of natural gas for the foreseeable future relies on two assumptions.

  • Can production keep up with demand, so that henry hub prices don’t rise significantly?
  • Will fracking be banned by the government?

There will be times that prices for natural gas will peak, especially in areas such as the Northeast where there are pipeline constraints. Protests could prevent the construction of needed additional pipelines which could also constrict supplies in other regions resulting in higher prices for natural gas in those regions.

The rapidity with which new wells can be drilled and fracked, with costs that are lower now than only two years ago, bodes well for a continued low natural gas price in the range of $3 to $3.50 per million BTU at the henry hub, for some time to come.

Natural Gas is basically Methane, which some believe is a dangerous greenhouse gas whose usage should be banned.

Banning fracking to prevent the usage of natural gas would upend this forecast and result in the United States having to import natural gas at much higher prices, resulting in higher prices for heating of homes and for electricity, coupled with the potential for supply interruptions that could result in blackouts when natural gas power plants are unable to obtain natural gas.

At present, natural gas has a bright future in the United States.

 

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