We’ve been keeping an eye on natural gas supplies coming out of the ground in the Permian (West Texas and eastern New Mexico) for more than a year. Why? Because all that associated gas being produced in the Permian has to go somewhere, and increasingly it goes to places where Marcellus/Utica gas also goes. A potent competitor. A year ago we told you about Permian and M-U gas competing in Midwestern markets (see Permian NatGas Increasingly Competes with M-U in Midwest). But it’s not just in the Midwest. Both plays increasingly now compete to supply markets along the Gulf Coast.

There are a variety of pipelines that haul M-U gas to the Gulf Coast. And there are pipelines that do the same for Permian gas, with several major new projects either under construction or soon will be.

Mason Ender, an analyst with BTU Analytics, spoke to M-U drillers at last week’s Pennsylvania Independent Oil & Gas Association (PIOGA) spring meeting in Pittsburgh. Ender had some interesting things to say about M-U gas going head-to-head with Permian gas in the Gulf Coast, both for use in refineries and to feed the LNG export plants that are popping up along the coast.

From our friends at Kallanish Energy:

Appalachia, the combination of the Marcellus and Utica Shale plays, generally has been constrained from getting more natural gas and natural gas liquids to market due to pipeline bottlenecks and a definite lack of line capacity.

No longer. Moving forward, pipeline problems won’t be the industry governor holding down gas and liquids production in Appalachia.

System bottlenecks relocating to the Gulf Coast

Rather, slowing U.S. demand, a bit of inventory depletion in the region, and the impact of literally free gas in the Permian Basin, could slow production, BTU Analytics chief operating officer Mason Ender said last week.

System bottlenecks are not going away, according to Ender, they are, instead, relocating, from Appalachia, the Permian and Oklahoma, to the U.S. Gulf Coast.

The reason for Gulf bottlenecks? LNG. “U.S. liquefied natural gas capacity will reach 9 billion cubic feet per day by the end of 2019,” Ender told his audience.

Asia a favored destination

The BTU executive kicked off last week’s Pennsylvania Independent Oil & Gas Association (Pioga) day-long spring conference, in Pittsburgh. Kallanish Energy was in attendance.

Most of the LNG produced will be sent abroad, with Asia a favored destination simply because of strong pricing, acording to Ender.

But with 9 Bcf/d of LNG online by the end of 2019, and the so-called second wave of potential LNG export facilities, which currently number 19 projects and more than 32 Bcf/d in additional LNG capacity to start hitting the market in roughly 2022 and beyond, what is the outcome?

Permian, Appalachian gas jockey for position

“The challenge to the LNG industry will be more LNG supply will lead to lower product prices in Asia,” according to Ender.

With crude oil production continuing to ratchet up in the Permian Basin, the volume of associated gas also continues to rise, Ender said. He/BTU expects Permian associated gas to jump to 20 Bcf/d, from the current 12 Bcf/d, by 2025.

Both Permian and Appalachian gas will be jockeying for position at refineries and for conversion to LNG and export along the Gulf Coast.

Marcellus, Utica Shale gas production rising

Despite going head-to-head with the Permian in terms of supplying natural gas to the Gulf Coast, production from the Marcellus and Utica will continue to dominate U.S. natural gas production.

Appalachia production in 2019 will top 30 Bcf/d for the first time in 2019, then basically tread water for the next four years, BTU projects.

At the same time, pipeline capacity will climb to roughly 38 Bcf/d in 2021 throuygha t least 2023.

“In 2018 and 2019, southbound takeaway capacity (from Appalachia) will be constrained, but from 2020 to 2023, producers will be demand-constrained,” Ender said.*

*Kallanish Energy (Apr 17, 2019) – Natural gas bottlenecks moving to the Gulf Coast

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