Must-know: Natural gas demand and supply dynamics in 2014 (Part 2 of 2)
Natural gas supply
Despite the lower natural gas prices, natural gas production growth has remained steady over the past few years. According to the EIA, in 2013, total U.S. natural gas production increased by 1%. This was the smallest increase since the shale gas revolution began. The increase was mostly from the ultra-prolific and low-cost Marcellus shale, which has added about 4 Bcf/d in new production year-on-year. The Marcellus spans across Appalachia, with the most prolific areas in Southwest and Northeast Pennsylvania, and it has been one of the largest sources of U.S. natural gas production growth over the past few years.
The EIA expects natural gas–marketed production will grow by an average rate of 3.0% in 2014 and 1.5% in 2015. Rapid natural gas production growth is expected in the Marcellus in 2014. Analysts project that within the next year, the Marcellus will provide at least one-fourth of the nation’s supply of natural gas.
Recent upstream technologies, such as hydraulic fracturing and horizontal drilling (which are used to develop areas that were previously uneconomic to drill) will continue to contribute to the increasing production. ICF International estimates that the U.S. has a recoverable gas resource base of over 3,500 trillion cubic feet (tcf). This represents approximately 150 years of U.S. gas demand at current levels.
Midstream companies are affected by natural gas
Companies involved in the natural gas gathering and processing space are often midstream energy MLP companies (“midstream” generally refers to the transportation, storage, and marketing of hydrocarbons such as natural gas and oil).
Companies that will benefit from this continued increase in supply include midstream service providers in the right area. For example, MarkWest Energy (MWE) and Williams Partners (WPZ) are major providers of gathering and processing in the Marcellus, one of the primary areas of natural gas production growth in the US. Regency Partners (RGP) has major gathering and processing operations in the Eagle Ford, another one of the most active plays in the US with major oil, natural gas, and natural gas liquids production. Exterran Partners (EXLP), which provides compression services, also stands to gain from increased natural gas production in the U.S. Many of these names are components of the Alerian MLP ETF (AMLP), the largest ETF with a focus on the energy MLP sector.
To learn more about major MLPs in the business of natural gas gathering and processing, read the Market Realist series Natural gas gathering and processing: A major business for many MLPs.
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