PIRA Releases Study on Gas Demand Implications of North American Shale Revolution

Shale Gas

While much of the North American gas market’s focus thus far has been on expanding supply tied to the commercial success of U.S. shale gas, the forthcoming demand response and related consequences for the benchmark Henry Hub price, as well as regional prices across North America, can be expected to surprise to the upside. The call on U.S. gas supply looks headed to expand by upwards of 20 BCF/D during the second half of this decade — even if contributions from the electric power sector are more limited than widely anticipated.

These findings are central to “Gas Demand Implications of the Shale Revolution: Assessing the Building Blocks of North American Gas Demand Growth,” a comprehensive study released this week by PIRA, a New York-based energy markets consulting firm.

The study concludes that the reshaped character of U.S. natural gas supply will generate a commensurate revolution in demand along with wide-ranging pricing implications. PIRA identifies a U.S. natural gas demand “super cycle,” marked by annual growth of nearly 4 BCF/D for a period of several years later this decade, spawned especially by gas-intensive manufacturing and LNG exports.

More specifically, the study notes that nearly 20 BCF/D of incremental U.S. gas production will be required by 2020 and a similar amount by 2025 to satisfy new domestic and international demand. According to study author and Executive Director of PIRA’s North American Gas Group, Greg Shuttlesworth, “Such an unprecedented demand growth cycle raises compelling questions about Lower 48 production’s ability to supply such growth without market-disruptive gas price increases.”

“Gas Demand Implications of the Shale Revolution” addresses key gas demand drivers set to boost the call on U.S. supply and, thus, indirectly Henry Hub and regional gas prices across the continent. In depth bottom-up analysis of five key sectors — U.S. industrial demand, gas requirements for electricity generation, opportunities in the transportation sector, increasing pipeline exports to Mexico, and LNG exports — are spotlighted.

“Notwithstanding the wealth of resources the U.S. now possesses and the high likelihood of further upward revisions, frankly it is difficult to envision that the realized reduction in U.S. gas price volatility in recent years will not reverse later this decade — at least temporarily — given the momentum behind the varied amounts of planned capacity additions across the five key sources of new demand focused on within the study,” adds Richard Redash, Managing Director of the North American Gas Group. “While many are banking on the electric power sector, considerably more material gas demand gains will center on the industrial sector and LNG exports, along with contributions from other building blocks during the remainder of the decade.”

LNG World News Staff, September 23, 2013