USA gas independence – looking for export markets

According to the Energy Information Agency (EIA) the USA produced 2.2 trillion cubic feet (TCF) of marketable gas in December 2013 [1]. This translates to 71 billion cubic feet (BCF) per day which exceeds the average daily consumption of 70 BCF per day in 2012 [2]. The USA is already self-sufficient in natural gas and is looking to acquire liquefied natural gas export markets.

The US government has already approved 38.5 BCF / day LNG export terminals, some of which are under construction [3]. The LNG EXPORT USA 2014 congress to be held in Houston at the end of April will bring together suppliers and prospective buyers with senior keynote speakers from China, India and the UK [4].

Experienced voices have warned that US shale gas is a bubble waiting to burst [5]. Losses and write downs in major shale gas producers lend some credence to those claims. The main problem has been a glut and low price. Current data points to the USA becoming an LNG exporter and is out there looking for export markets [4]. Creating an open system where excess gas can be exported at international prices may transform the fortunes of the US shale gas industry.

The history of shale gas production in the USA has been quite remarkable. Following the mantra of drill baby drill the US fleet of rigs more than doubled from 800 units in 2000 to over 2000 units in 2008 (Figure 1). It is the post-2008 history that is remarkable. Following industry wide shutdown in the wake of the financial crash there has been a huge migration away from drilling gas to drilling the light tight oil plays of Bakken and Eagle Ford (Figure 1). Despite the number of rigs drilling for gas falling from over 1600 in 2008 to less than 400 today, gas production continued to rise (Figure 2) as drilling became more efficient and rich sweet spots were discovered in The Marcellus shale of Pennsylvania.

Figure 1 US rotary drilling rid count from Baker Hughes [6]

Figure 2 US marketable natural gas production [1]

The plateau in US gas production reached in 2011 marks self sufficiency being reached (Figure 2) since the number of rigs drilling for gas has continued to decline in that time frame (Figure 1). Shale gas production volumes do not link directly to drilling since there is always a backlog of wells drilled waiting to be connected to the distribution system by pipelines. But it does appear that an equilibrium point has been reached where a little over 300 rigs drilling shale gas can produce sufficient volumes to offset declines – for so long as new drilling targets can be found.

Shale sceptical arguments point to high decline rates and eventually running out of shale targets to drill. Leading critic, Arthur Berman, has also emphasised the loss making nature of the shale business, arguments underlined by company write downs [5]. The latter problem has been more one of price and LNG exports may rectify that problem in short order. Berman may yet be proven right, but the drilling and production statistics point to the US achieving self sufficiency at a canter. To grow production to create export volumes from here may require drilling to increase again and that may involve pulling rigs away from the liquids plays or expansion of the drilling fleet.

There are multiple benefits for the USA from exporting shale gas, among them the creation of employment, the reduction of the US energy import trade deficit, securing the mid term future of the shale industry by driving gas prices up and undermining the gas dependency of Europe on Russia. In so doing weakening the economy and political influence of that old cold war enemy. On the downside, Americans can expect their natural gas prices to rise as LNG exports chase prices in the Far East, five times higher than domestic US prices [7]. And by exporting gas today the USA may be selling its future energy security – but hey, that is the American way.

[1] EIA: US natural gas marketed production
[2] BP: Statistical Review of World Energy 2013
[3] Applications Received by DOE/FE to Export Domestically Produced LNG from the Lower-48 States (as of March 24, 2014)
[4] LNG Export USA 2014: Global Buyer Congress
[5] Shale, the Last Oil and Gas Train: Interview with Arthur Berman
[6] Baker Hughes: North America Rig Count
[7] What is the real cost of shale gas?

This entry was posted in Energy and tagged , , , , . Bookmark the permalink.

17 Responses to USA gas independence – looking for export markets

  1. Mark says:

    According to the EIA, the US dry gas production (marketed production less extraction loss) was 24.3 TCF (trillion cubic feet) in 2013. Imports and exports for this period were 2.9 TCF and 1.6 TCF, also for 2013. So the US is still a net importer of natural gas (1.3 TCF in 1023). This is more than 5% of consumption and it comes almost entirely from Canada.

    So it would be better to speak of reexporting Canadian gas. I think this Canadian gas mainly comes from Alberta, so exporting it from the gulf coast may make sense if there are existing pipelines from Alberta to the gulf coast.

    • Euan Mearns says:

      Mark, agreed in part. I had mentioned Canadian imports but took it out since it is a detail in the big picture. The USA currently exports some gas to Mexico and so I guess they buy cheap in the North and sell dear in the south.

      I’d guess that continued US imports from Canada may be linked to supply contracts or purely out of good will for its Northern neighbour. But looking to the future, I’d be quite sure that exporting Canadian gas as LNG through US terminals will be part of the plan. Did the Canadians not have a big LNG explosion some time that makes it difficult to get terminals built there?

  2. Roger Andrews says:

    Here’s a potted summary of the situation relative to Europe & Russia:

    Key quote:

    “Although Russia’s strong hand derives in part from its role as a critical supplier of energy, it is hard to see how relaxing restrictions on U.S. exports of oil and natural gas would make much difference for any of these calculations. Even if more LNG facilities were approved tomorrow, it would still take years before they would begin delivering gas to customers, and it’s inconceivable that the U.S. could ever replace the 7.4 trillion cubic feet of natural gas that Russia exported in 2012.”

    • Euan Mearns says:

      From your link:

      Speaker of the House John Boehner (R-OH) last week called for faster Energy Department approval of facilities to export liquefied natural gas (LNG).

      And from this DOE source that I cite:

      FTA – Applications to export to free trade agreement (FTA) countries. The Natural Gas Act, as amended, has deemed FTA exports to be in the public interest and applications shall be authorized without modification or delay.

      It seems to me that the DOE have already approved facilities with export capacity of 38.5 BCF / day = 14 TCF per annum. Am I miss-inderstanding something here? I have long been sceptical about the ability of shale to produce the required export volumes but as shale gas drilling rig count keeps going down and production up, I’m having second thoughts.

      I don’t think the USA would be setting out to replace Russia but to simply reduce European dependency. Russia will find new markets in the Far East. It is perhaps easier for the USA to export gas to Europe than China?

      • BAU says:

        I thought I read somewhere that a lot of gas is byproduct from liquid plays, and as such you can’t only focus on the amount of gas-only rigs?

        • Euan Mearns says:

          You are correct. The liquids plays produce both liquids and gas. Liquids wells are usually switched on after they are drilled and fracked and the gas flared. And then the gas pipe arrives and the gas is collected and sold.

  3. Roger Andrews says:

    Euan: The US produced 25.6 trillion cu ft of gas in 2013, so exporting an additional 14 trillion cu ft of exports would require a 50% short-term production increase. Is this feasible? I guess it is.

    And if it is then a) the US could totally replace the 161.5 billion cu m (5.7 trillion cu ft) that Russia exported to Europe in 2013 (data from link below) and still have enough left over to fill demand in a lot of other places too, and b) the claim in the article I linked to above, that it’s “inconceivable that the U.S. could ever replace the 7.4 trillion cubic feet of natural gas that Russia exported in 2012” is nonsense.

    A sword of Damocles hanging over Russia’s head?

    Incidentally, we Yanks don’t mind compromising our future energy security to come to Europe’s rescue yet again. We could never hope to match the Norwegians anyway: 😉

    • Euan Mearns says:

      Roger, its possible that US exports reach 7.4 TCF per annum. That may be enough to soak up declines in other parts of the world for a while at least. I don’t think it will dent Russia at all. European posturing is just that. But at some point the US shale industry will run out of sites to drill and wells to re-frack. I don’t know how far down the line that is.

  4. Hi Euan,

    Timely topic.

    “And by exporting gas today the USA may be selling its future energy security – but hey, that is the American way.”

    Given the large prices for gas in Europe and Asia compared with the United States, the economic benefits of exporting gas, in jobs, profits, and government receipts are enormous. I would go for it.


    • Euan Mearns says:

      Dave, there seems to be multiple benefits for the USA. Many will moan about the higher domestic prices without realising that they must have higher domestic prices for the shale industry to survive. Higher prices are in fact the main benefit for everyone. Significant quantities of US LNG may also lower international prices, boosting demand and international prosperity – folks will buy more iPads and 777s. But it will also reduce demand for gas in the USA – making even more available for export. Someone will make a killing, if you can work out who, let me know 😉 E

  5. Mark says:

    Dry natural gas production in the US has been almost flat for the past two years ( Storage levels are also at multiyear lows. If significant export facilities are built the price in the US, the US price would go up steeply. Clearly this would benefit producers, but at the expense of consumers, including chemical companies in the US, which now have a clear competitive advantage due to the low prices. It is not clear if there would be any net benefit to the nation as a whole. I am also not convinced that the increase in production we have seen in the last ~7 years can continue for more that a few additional years. I am not against the US exporting this gas to Europe (I live in Austria), but I don’t see it as a real solution to anything.

    • Euan Mearns says:

      Mark, surplus US gas production has no where to go. So the plateau is an inevitability of a saturated market. If you look at the chart I posted that goes back longer than yours, you’ll see that gas production used to be cycled annually, higher in winter time, to meet cyclic demand. I’m not sure what happened, but that pattern disappeared around 1995. I guess the USA built more storage and used that to meet the demand cycle. Storage at multi-year lows is consequence of extreme cold winter. With shale, you can’t just open the spigot to get more gas. You have to connect more wells and drill more wells.

      I know its a crazy system. If it fixes a short term problem then it will be done. Some folks are going to get rich and many will be contented. But you’re right, there may be riots in USA when the gas price doubles there and halves in Japan. This thing about gazing far into the future is a modern phenomenon linked to the internet. I’m unsure how beneficial that is.

      • Kit P says:

        Around 1995, POTUS Clinton was anti-nuke and anti-coal while there was a lot of cheap natural gas coming from Canada. We were building lots of CCGT which makes lots of sense when they replace SSGT and gas is cheap. This creates a summer peak demand. POTUS Clinton was also anti-drilling. Funny thing happens when you increase demand while restricting new production. POTUS Bush being from Texas understood energy and the environment as can be seen by those who bothered to read the NATIONAL ENERGY POLICY, May 2001. POTUS Bush turned everyone loose with the result being new drilling, wind farms, coal plants, nuke plants, and ethanol plants. POTUS Obama is clueless and the US no longer has a coherent policy for anything. This makes it hard to predict the future but I will believe in the US exporting LNG. Methane is an important feedstock for many industries. Using for energy is just plain stupid and short sighted because we have coal and uranium for energy.

      • Hi Euan,

        ” there may be riots in USA when the gas price doubles”

        People here don’t respond strongly to natural gas price increases, at least compared to gasoline spikes. With a gasoline spike there is a kabuki dance routine where there is a congressional investigation that never finds any wrong-doing. But with natural gas, the rise shows up in the gas heating and electricity bills, which are much less of a political issue in the US than in the UK.


  6. Roger Andrews says:

    Euan: I note that none of the export applications specify the country or region to which the gas is going to be sent. This suggests that their purpose is simply to put the applicants in a position where they can export surplus natural gas in the future a) if there is any, b) anyone wants it and c) if the necessary infrastructure is in place. So as a market indicator the applications probably don’t mean very much.

    But if I were Russia I’d still be keeping close tabs on US shale gas potential.

  7. The number of shale gas wells previously drilled, fracked but not yet connected into pipeline gathering lines is an important consideration when looking at overall production to rig count. This is particularly true in the Pennsylvania Marcellus where pipeline gathering systems have lagged behind the number of wells drilled. As this inventory of unconnected wells declines over time I believe we will a stronger correlation between productivity to operating rigs. As well according to the latest EIA March 2014 shale fields productivity report, legacy well losses are increasing. In the case of vaunted Marcellus shale play, on a per million cubic foot per day basis, 52% of new well or recently connected wells production gains are now being offset by losses in production from legacy wells. If such legacy well losses in the March 2014 EIA report are not indicative of increasingly aggressive depletion rates, then I am not sure what they look like.

  8. Euan Mearns says:

    Bob, thanks for the heads up on that report which is a gold mine of information. Declines are of course severe, but with 100 rigs operating in Marcellus what the data says is that 50 rigs are required to maintain constant production.

Comments are closed.