NGA ISSUE BRIEF: Supply Outlook

SUMMARY
  • U.S. natural gas resource base extensive and growing
  • Shale gas has grown to represent over 60% of total U.S. natural gas production
  • Appalachian production transforming Northeast market dynamics
  • LNG imports provide market flexibility in Northeast
Source: U.S. EIA, 2014

For U.S. natural gas supplies, the news is positive: an era of abundant domestic supplies has arrived.

U.S. Gas Resource Base Continues Growth

A key reason for this strong production trend of recent years is the growing role of shale and unconventional gas production. Shale gas now accounts for over 50% of U.S. dry natural gas production, compared to 10% in 2007.
This positive supply news was underscored in July 2017 when the Potential Gas Committee released its 2016 biennial report: Potential Supply of Natural Gas in the United States. The updated assessment finds that the United States possesses a total technically recoverable natural gas resource base of 2,817 trillion cubic feet (Tcf). This is the highest resource evaluation in the PGC's 52 year history - exceeding by 302 Tcf the previous record-high assessment from year-end 2014.
The PGC noted that shale gas accounts for 64% of the country's total "traditional" potential resource, at 1,797 Tcf. Furthermore, "the Atlantic area ranks as the country's richest resource area with 39% of total U.S. Traditional resources."

Chart: U.S. EIA, 8-17


In December 2016, the U.S. Energy Information Administration (EIA) released a report entitled "U.S. Crude Oil and Natural Gas Proved Reserves" for 2015. It found that "U.S. production of total natural gas increased for the tenth consecutive year, increasing by 4% from 2014." The report also found that “on a geographic basis, Pennsylvania had the largest increase in natural gas production by volume, a gain of 0.6 Tcf (13%)."

Among other interesting highlights, EIA notes that "Pennsylvania had the highest level of natural gas proved reserves from shale in 2015 (53.5 Tcf), and Texas had the second highest level (42.6 Tcf) (Figure 13)...Ohio became the fifth-largest shale gas proved reserves state in 2015 (Utica/Pt. Pleasant Shale proved reserves rose to 12.4 Tcf)." Look for the full report here: http://www.eia.gov/naturalgas/crudeoilreserves/

Transformative Potential of Shale and Other "Unconventional" Supplies


As noted, the rapidly-growing source of supply in the U.S. mix is the "unconventional" gas resource. "Unconventional" gas is defined as "Quantities of natural gas that occur in continuous, widespread accumulations in low quality reservoir rocks (including low permeability or tight gas, coalbed methane, and shale gas), that are produced through wellbores but require advanced technologies or procedures for economic production."

Source: U.S. EIA, April 2015


Shale gas is considered an "unconventional" resource. The gas is located generally deep underground within shale rock formations. Advances in drilling technology, such as horizontal drilling, have enabled natural gas producers to begin tapping this supply source in a significant way.
For the Northeast and Mid-Atlantic, the major potential source of growth is the Appalachian Basin and its Marcellus Shale and Utica Shale basins. These shale gas formations extend from West Virginia into Ohio, Pennsylvania and New York. Drilling is focused in PA and WV; unconventional drilling is not permitted in NY.
Estimates are that the Marcellus basin may hold from 140 to nearly 500 trillion cubic feet (Tcf) of natural gas. Production in the Marcellus region has grown strongly in just the last few years, to nearly 20 billion cubic feet per day by mid-2017.
The Northeast, long accustomed to being "at the end of the pipeline," now finds itself located next to - and indeed on top of - one of the largest natural gas basins in the U.S.
Potential environmental issues associated with shale development, from water usage to groundwater protection to local impacts from production, need to be - and are being - monitored and addressed. MIT's comprehensive study on natural gas in June 2011 found that "the environmental impacts of shale development are challenging but manageable."
See NGA's separate Issue Brief on the Marcellus Shale for more information on this resource base.

Canadian Gas: Important Part of U.S. Mix, but Declining Exports into U.S. Anticipated


Regarding imports, Canada has been a valuable supplier of gas to the U.S. and the Northeast for decades. Canada will remain an important supplier for years to come but its share of the U.S. market is expected to decline over the long-term. From 2007 to 2016, Canadian natural gas exports to the Eastern U.S. decreased from 2.8 Bcd/d to 0.87 Bcf/d, a two-thirds decline (source: National Energy Board of Canada). The growth of U.S. production is leading to lower imports from Canada; at the same time, natural gas demand within Canada is expected to grow. Canadian exports to the U.S. West and Midwest are generally steady, but exports to the Eastern U.S. have declined considerably, reflecting the rise of more local Marcellus production. Canada's National Energy Board stated in June 2016 that "net pipeline exports of natural gas from Canada could decline to essentially zero by 2040."
As one indicator of the changing dynamic, several pipelines in the U.S. Northeast, traditionally transporting imported supplies into the U.S. from Canada, are now exporting supplies to Canada - a true reversal of long-standing pipeline flow patterns. EIA noted in May 2015 that "in 2014 New York became a net exporter of natural gas to Canada."

LNG Potential Remains Valuable to Key Markets


Photo: Distrigas

The global market is also increasing its supplies of natural gas. Liquefied natural gas (LNG) export capability has grown strongly in recent years with liquefaction capacity in countries as diverse as Australia, Peru and Qatar. After strong growth a decade ago, U.S. demand for LNG has been declining, reflecting the rise of domestic production. The U.S. government has approved four LNG export facilities to date - based in the Gulf Coast and Maryland.
Nevertheless, LNG continues to be particularly important to the Northeast - and New England - natural gas supply mix. With the Northeast delivery system still constrained at certain points, LNG helps to ease bottlenecks and increase supply and delivery options. LNG provides a valuable supply option to the Northeast portfolio.
Overall, the supply picture for natural gas looks increasingly positive, in the U.S. and regionally, with more supply opportunities than foreseen just a few years ago. It requires prudent and responsible development, and the addition of infrastructure investments to link these new supplies to the end-use markets through pipeline expansions.


For Further Information

U.S. EIA: U.S. Crude Oil and Natural Gas Reserves, 12-16

Potential Gas Committee, July 2017 update

MIT Energy Initiative, "The Future of Natural Gas," June 2011 report