Natural Gas Production - Game Changing Energy Trends For 2019

Market watchers hoping for a spike in domestic gas prices will have to wait: enormous gains in natural gas production inside the United States should keep prices down, though export markets give producers reason to keep pumping more.

Within the domestic United States record gas demand in winter 2018-2019 will be met by domestic production, which is set to to exceed 30 trillion cubic feet in 2019. Natural gas prices have stuck at around USD 3/million BTU, and the supply-demand ba lance inside the U.S. will likely keep domestic prices from climbing much higher.

The real growth opportunity lies in natural gas exports: the U.S. became a net exporter of natural gas in 2017. In the next decade, it will surpass every other nation and become the worlds largest natural gas producer.

That is the biggest energy shift in a generation.

Future growth will come from LNG and from pipeline exports to Mexico, where U.S. exports have carved out a market. 

Natural gas exports to Mexico rose from 333 trillion cubic feet in 2010 to 1,500 trillion cubic feet in 2017, according to EIA data. While growth slowed in 2018 due to lack of pipeline capacity, additions on both sides of the U.S.-Mexico border should allow exports to increase in 2019-2020.

Over the next decade, stable gas prices inside the United States, thanks to abundant supply, will encourage more investment into export facilities, particularly pipelines. 

Even with stable prices, companies sending gas south of the border should enjoy expanding capacity and growing demand, as Mexico adds more gas-fired electricity plants amidst declining domestic gas production. Pipelines will mean less LNG imports, which are more expensive for Mexico than cross-border imports, and will leave US LNG supply free to tap more profitable markets in East Asia, where spot prices are higher. 

Inside the United States, expanding production has hit bottlenecks due to a lack of pipeline infrastructure. Together with the need for more U.S.-Mexico pipeline capacity, the companies who will most benefit are those engaged in natural gas infrastructure, particularly firms like Kinder Morgan (KMI) and TransCanada (TRP).

Kinder Morgan has two long-haul natural gas pipelines planned for the Permian (Gulf Coast Express and Permian Highway Pipeline), part of a planned USD 4 billion investment in natural gas infrastructure. The company announced  Q3 net income available for dividend distribution at USD 693 million, up from USD 334 million in Q3 2017, and continues to fund growth capital from operating cash flow.

But we are watching Antero Midstream GP (AMGP). This USD 3.2 billion market cap company plans to acquire   Antero Midstream Partners, including shares of Antero Resources (AR), to form a simplified corporation, Antero Midstream Corp. Once combined, the new firm will possess the upstream assets of Antero Resources Inc. (AR) in the Marcellus and Utica shale fields, where annual growth has averaged 20 percent. The midstream firm expects to invest USD 2.7 billion over the next five years to support gas production from existing natural gas facilities.