U.S. natural gas prices will not stay low indefinitely, analysts at Moody's said recently, pointing to domestic and international markets for U.S. fuels catching up with the nation's shale surplus in the long term.
"We see rising demand as [U.S.] power generation switches to gas from coal, along with LNG exports globally and piped exports to Mexico, as well as demand from a [U.S.] petrochemical renaissance catching up to the abundant and inexpensive natural gas supply in the medium term," analysts at the rating agency wrote in a March 21 report.
The U.S. in December 2018 shipped a total 122.7 Bcf, with exports standing to increase this year as Gulf Coast projects like Cheniere Energy Inc.'s Corpus Christi facility, the Sempra Energy-led Cameron LNG terminal and Freeport LNG Development LP's facility begin commercial service. The U.S. Energy Information Administration, meanwhile, expects the share of utility-scale electricity generation produced by natural gas-fired power plants to continue to rise from 35% in 2018 to 37% in 2019 and 2020 as coal's share falls.
U.S. companies are also capitalizing on booming demand for petrochemicals by building ethane crackers, which turn the NGL ethane into ethylene, a crucial component of plastics and other petrochemicals, after the ethane has been separated from other NGLs through fractionation.
Still, the lack of North American midstream infrastructure will continue to dampen U.S. gas prices until more pipelines and LNG facilities come online to relieve oversupplied regions, Moody's analysts said.
"As these constraints disappear, natural gas prices should rise gradually toward oil equivalent prices over the long term," they wrote.
The EIA anticipates Permian gas production exceeding 14 Bcf/d in April, and midstream analysts project that will grow 2 Bcf/d per year. Executives from both the upstream and midstream sectors are hoping for LNG exports to provide a much-needed outlet for that supply, but with little to no space on existing pipelines to carry gas out of West Texas and New Mexico, they are counting on new projects to fill the gap.
The 1.92-bcf/d Gulf Coast Express project — under development by Targa Resources Corp., Kinder Morgan Inc., Altus Midstream Co. and DCP Midstream LP — and NAmerico Energy Holdings' 1.85-Bcf/d Pecos Trail pipeline should help alleviate those bottlenecks once they begin operating in the third quarter of 2019. The 2-Bcf/d Kinder Morgan-led Permian Highway project scheduled to start up in late 2020 is the only other gas pipeline that has reached a final investment decision.
Exports to Mexico have lagged behind original expectations, however, with underused pipelines and pipeline projects that have been delayed due to bureaucratic hurdles and internal strife.
Another constraint on U.S. gas prices is LNG's gradual transformation into a commodity. The "frenetic pace" of LNG infrastructure construction is slowly breaking the link between oil and gas prices worldwide, according to the Moody's report, but "the natural gas market will still struggle to resemble the global marketplace for oil."
"Transportation costs and complex logistics should still keep natural gas prices from truly optimizing in line with oil for a long time," the analysts said.