The US 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 Monday.
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At the heart of the forecast is the fact that US 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 US LNG and pipeline gas from the Gulf Coast.
During the USAEE/IAEE North American Ride the Energy Cycles Conference, government officials, analysts and investment bankers joined industry consultants to explore how shale technology is boosting the US role in global energy markets, and how the Gulf is a key focal point for those efforts.
While 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.
"While the US may seem to be retreating geopolitically from the outside world, there has never been a hub like the US Gulf Coast. In the future, it will be even bigger," said Edward Morse, global head of commodities research for Citigroup. "It's hard, if not impossible, politically to disrupt that market from the hub position."
Bolstering that expectation, S&P Global Ratings issued a report Monday that forecasts broad stability in the US oil and gas industry over the next several years. Gas prices around $3/MMBtu are a key element of that view.
There is ample natural gas supply in the US, 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.
"Northeast regional differentials continue to remain below the Henry Hub price but we believe they will narrow given the significant amount of takeout capacity being built in the region over the next several years," S&P Global Ratings said. "A lot of associated gas comes from extensive oil drilling occurring in the Permian Basin."
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.
"Once Rover Pipeline is fully operational, which we expect to occur in the first half of 2018, it will improve natural gas takeaway capacity in the Northeast. We also forecast volumes to improve in the SCOOP and STACK basins. Stronger NGL prices will likely result in an increase in processing and fractionation volumes across the US."
With such projections, investors are making big bets on the future of US oil and gas production, as well as midstream activity and, of course, exports.
For LNG, the ramp-up of exports from North America, especially from the US, will continue to grow because of increasing demand from emerging markets, said Ning Lin, an analyst with consulting firm RBAC.
"The world really needs a lot more LNG out of North America," Lin said. "The fastest ramp-up will be in the next five to 10 years."
--Harry Weber, email@example.com
--Edited by Annie Siebert, firstname.lastname@example.org