US natural gas supply gains will exceed demand growth this winter by almost 2 Bcf/d assuming normal weather, keeping inventories robust and possibly weakening prices and forcing upstream and midstream operators to tighten spending, S&P Global Platts Analytics said in an outlook for North America issued Thursday.
The expectations come amid significant uncertainty about the trajectory of activity tied to a key driver of domestic gas consumption — LNG exports.
Approximately 2.7 Bcf/d of additional liquefaction capacity is projected to come online in 2020, giving a lift to feedgas flows to terminals that currently stand at almost 8 Bcf/d. A surge could be stunted if lower utilization due to poor market economics materializes. Much will depend on weather.
“A lot is riding on Asia having a cold winter,” Kevin Sakofs, Platts senior analyst, North American natural gas, said during a webcast presentation discussing the outlook.
Perhaps portending what’s to come, pipeline operator Kinder Morgan, which moves more than a third of the gas consumed in the US, forecast Thursday a reduction in capital expenditures for 2020, to $2.4 billion from the $2.8 billion that it estimated in October it would invest this year on expansion projects and contributions to joint ventures. The latest figure for 2019 was $300 million lower than the company previously expected.
According to the Platts Analytics outlook, the gas market enters the winter with roughly 3.75 Tcf of supply, a greater than 500 Bcf surplus year over year. Assuming normal weather, Platts Analytics forecasts that the market will end March with roughly 2 Tcf. Half of market participants polled during the webcast estimated March 2020 storage inventories would come in at 1.8-2 Tcf.
Total US gas supply this winter is forecast to grow by 5.6 Bcf/d versus last winter, while total demand will rise by 3.7 Bcf/d, according to the outlook.
Activity in key dry gas plays are already slowing due to soft commodity prices, with oil production seen as a wildcard given the large amounts of associated gas that are lifted by drillers. A challenged global backdrop could push back on US pricing in 2020, according to the outlook.
Even though overall US gas production continues to rise, rig counts have been falling, suggesting that future output could be impacted. The Appalachian Basin in the Northeast, the Permian Basin in Texas and New Mexico and the Haynesville in Louisiana are seen as plays to watch.
“We do believe we are sort of reaching that tipping point, likely starting this month or toward the end of January,” Luke Jackson, Platts senior analyst, North American natural gas and power, said during the webcast.
— Harry Weber, Harry.Weber@spglobal.com
— Edited by Richard Rubin, firstname.lastname@example.org