By Joe Petrowski
Current natural gas production in the U.S. is 27 Bcf (1 Bcf is 178 million barrels of oil), which grew moderately but sustainably from 9 Bcf in 1954 to 18 Bcf in 1992. The larger, more recent jump in production came from shale—better technology is available to find, drill and recover natural gas (horizontal drilling). For energy users, policymakers, hand-wringing OPEC leaders and Russian oligarchs, where will production and prices head from here?
While it is hard to predict the future of supply and prices—unless you’re one of the true believers in “the limits to growth” that have been proven wrong so many times on so many issues in the past—technology and hard economics will determine the future of all commodities.
Simply put, natural gas production in North America is poised to make a quantum leap over the next decade to 47 Bcf/year. The main reason for this is twofold:
- The marginal cost of finding and recovering natural gas has dropped to $3/MMbtu and could drop further (equivalent to $25/barrel) with scale, improved gathering and offtake infrastructure and technology.
- The value of biogas RINs and the incentives to capture ambient gas from landfills and digesters that are replacing landfills. This alone will add 15 Bcf to production on an annual basis. There are 39,000 landfills in the U.S. producing 135 million tons of greenhouse gases each year, or 70 Bcf natural gas equivalents. Add in more methane production from municipal digesters and agricultural waste and you are looking at substantial increases in the supply of methane being driven by environmental concern and the largesse of our friends in D.C.
So, what keeps energy prices from collapsing? Where does our 27 Bcf go now, and where will it be a decade from now when our production is 47 Bcf?
Production 27 Bcf 47 Bcf
Residential 4 Bcf 6 Bcf
Commercial 3 Bcf 5 Bcf
Power 9 Bcf 16 Bcf
Industrial 7 Bcf 8 Bcf
Transport 0.5 Bcf 5 Bcf
Exports 3 Bcf 6 Bcf
Pipeline pack 0.5 Bcf 1 Bcf
Residential, commercial and industrial use will grow, but only modestly with the lack of new or adequate distribution lines, residents preferring their oil or propane dealer, more efficient heating spaces and electric processes gaining growth in manufacturing. So, growth is modest (5 Bcf cumulatively).
Power is the big growth area given the increase in power demand, decommissioning of coal and nuclear power and the grid’s need for “black start” power units to balance intermittent solar and wind. Only the ferocity of “NIMBYs,” incessant hearings and bureaucratic red tape will dampen this growth. The natural gas industry needs the export market and a growing transport demand (8 Bcf in total) to keep the exploration and production business viable. Building LNG export facilities is no walk in the park either, of course.
Given that, in the meantime, oil and natural gas will remain low in price, I suspect at some point a major default or bankruptcy in the sector will get Washington to act and help with:
- The development of a NGV transport market through mandates, carbon tax, tax incentives or non-monetary incentives like HOV lanes and special parking
- Easier permitting of export facilities and power plants
In summary, the overall news is terrific and opportunities abound to efficiently deal with the 300 million tons of waste we produce each year, and the existing landfill sites from past waste that need to harness the ambient methane. You can be environmentally friendly and make money too.
Joe Petrowski has had a long career in international commodity trading, energy and retail management and public policy development. In 2005, he was named President and CEO of Gulf Oil LP and elected to the Gulf Oil LP Board of Directors. In October 2008, he was named CEO of the now combined Gulf Oil and Cumberland Farms, whose annual revenues exceed $11 billion and who now operates in 27 states. In September 2013, Petrowski stepped down as CEO of The Cumberland Gulf Group. He is now the Managing Director of Mercantor Partners, a private equity firm investing in convenience and energy distribution. Joe is also a member of the Gulf, Yesway and Green Print, LLC boards.