American Oil and Gas Reporter - December 2020 - 40

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across all energy-intensive industries after lockdowns were
imposed to slow the spread of COVID. Industrial demand has
stabilized, but with business uncertainty persisting about the
pace of the recovery, it is expected to grow by only 0.1 Bcf/d
during winter 2019-20.
However, new and expanding petrochemical, steel and
fertilizer projects are poised to boost demand going forward.
Between 2016 and 2019, a total of 39 industrial facilities came
on line, representing an aggregate 1.5 Bcf/d in new incremental
demand. Another 37 projects representing a $62 billion total investment are expected to enter service between 2020 and 2023
to add 1.6 Bcf/d of incremental demand, assuming no significant
delays in project scheduling. This list includes 29 new-build facilities (21 petrochemical, five steel and three fertilizer plants),
six expansions (five petrochemical and one steel), and two
plant restarts (both steel).
Supply Picture
Turning to natural gas supply fundamentals, production has
been declining since the second quarter, as producers have
scaled back drilling and completion in response to low prices
and slack demand caused by the negative economic impacts of
COVID-19. Drilling rig and frac spread counts have increased
since their summer lows, but production output is forecast to
average 86.0 Bcf/d this winter, which is quite a change from the
94.2 Bcf/d produced last winter.
Between August 2019 and August 2020, production in dry
gas plays grew 200 million cubic feet a day while associated
gas production from oil plays fell 2.6 Bcf/d across U.S. supply
basins. A four- to six-month lag time is typical before reduced
drilling and completion activity is reflected in the production
numbers. August was approximately four months after the start
of last spring's well drilling/completion downturn, and gas production was clearly falling, even with shut-in wells mostly back
on line by that point. As we move farther into the activity
downturn, the production impact should become increasingly
more apparent.
Permian Basin associated gas has accounted for a sizeable
share of recent years' growth in U.S. gas output. According to

EIA data, for the first time in the basin's long history, associated
gas produced from oil wells accounted for the majority of total
Permian gas output in 2018, surpassing the region's nonassociated
gas production. In 2019, the basin saw 30% annualized
production growth, up 3.4 Bcf/d over 2018. The Permian is
prolific and has the capacity to meet substantial future demand
growth, especially with new pipeline takeaway capacity scheduled
to debut in 2021.
At some point, Permian output is expected to bounce back
and resume growth, but with low oil prices, gas production
across the basin is predicted to decline to 10.5 Bcf/d after
flowing at 12.5 Bcf/d last winter. Additional declines also will
be seen in the Eagle Ford, SCOOP/STACK, Bakken, Gulf of
Mexico and other oil-rich plays, further tightening the market.
Consequently, nonassociated gas production from dry gas
plays will respond to higher price signals and be called upon to
offset the losses in associated gas. Assuming natural gas prices
remain relatively supportive, month-to-month dry production
growth in the Appalachia Basin and Haynesville Shale should
emerge in early 2021.
Taking it all into account, the bottom line is that, on balance,
the key factors point toward upward pressure on prices compared
with last winter. However, in addition to the usual uncertainties
about the weather, this winter has wild cards that could
definitively impact demand and pricing pressures in either
direction in the months ahead. The COVID-19 pandemic has
made economic forecasting as challenging as forecasting the
weather, but NGSA's annual analyses underscores the responsiveness and resiliency of natural gas supply, providing certainty
to consumers as the heating season unfolds. In short, the fundamentals show the market works.
❒
Editor's Note: The preceding article was adapted from the
Natural Gas Supply Association's 20th annual Winter Outlook
report, which was developed using research from Energy Ventures
Analysis Inc., demand and supply projections from the U.S.
Energy Information Administration, and economic projections
from IHS Markit. The analysis is based on publicly reported
data. NGSA does not project wholesale or retail market prices.

ORLANDO A.
ALVAREZ

Orlando A. Alvarez is chairman of the Natural Gas Supply Association and head of BP's
North American gas marketing and trading business. Alvarez also is a member of BP America's
board of directors and BP's global supply and trading organization's executive leadership
team. His tenure at BP spans more than 20 years with current accountability for North
American trading, marketing, supply and derivatives activities, specifically pertaining to
natural gas, power and natural gas liquids.
40 THE AMERICAN OIL & GAS REPORTER

American Oil and Gas Reporter - December 2020

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