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Gas demand and the shale revolution

Energy Global,

Much of North America’s natural gas market has been focused on expanding supply tied to the commercial success of US shale gas. The forthcoming demand response and related consequences for the benchmark Henry Hub price, as well as regional prices across the country, can be expected to surprise to the upside. During the second half of this decade it looks as though US gas supply is going to expand upwards of 20 billion ft3/d, even if contributions from the electric power sector are more limited than widely anticipated.

The study

The above are central to a new study from PIRA energy group called ‘Gas Demand Implications of the Shale Revolution: Assessing the Building Blocks of North American Gas Demand Growth.’ The study highlights that the reshaped character of US natural gas supply will generate a commensurate revolution in demand along with wide ranging pricing implications. A US natural gas demand ‘super cycle’ has been identified by the report which is marked by annual growth of nearly 4 billion ft3/d for a period of several years later this decade, spawned especially by gas intensive manufacturing and LNG exports.

The study also notes that nearly 20 billion ft3/d of incremental US gas production will be required by 2020 and a similar amount by 2025 to satisfy new domestic and international demand. The report addresses key gas demand drivers set to boost the call on US supply and, thus, indirectly Henry Hub and regional gas prices across the continent. In depth bottom up analysis of five key sectors is also highlighted:

  • US industrial demand.
  • Requirements for electricity generation.
  • Opportunities in the transportation sector.
  • Pipeline exports to Mexico.
  • LNG exports.

Report comments

‘Such an unprecedented demand growth cycle raises compelling questions about lower 48 production’s ability to supply such growth without market disruptive gas price increases,’ said study author and Executive Director of PIRA’s North American Gas Group, Greg Shuttlesworth.

‘Notwithstanding the wealth of resources the US now possesses and the high likelihood of further upward revisions, frankly it is difficult to envision that the realised reduction in US gas price volatility in recent years will not reverse later this decade, at least temporarily, given the momentum behind the varied amounts of planned capacity additions across the five key sources of new demand focused on within the study,’ added Richard Redash, Managing Director of the North American Gas Group. ‘While many are banking on the electric power sector, considerably more material gas demand gains will centre on the industrial sector and LNG exports, along with contributions from other building blocks during the remainder of the decade.’

Adapted from a press release by Claira Lloyd.

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