How are you doing Mr. Claus? We hope this letter finds you well and in good spirits. Just like you, this time of year is extremely busy for us (maybe not as busy as you can get, but pretty hectic as you can imagine), but we thought was a good idea we write you. We understand you typically get these types of letters from boys and girls from all over the world, but why not one from us. You’re a jolly good elf, and we hope you may find some time in the busy holiday to add us to your Christmas Eve delivery list.
First, let me tell you we’ve been good this year. Our year-to-date production of natural gas is down only 0.2 Bcf/day from last year’s record production level of 72.4 Bcf/day, which has been impressive in the lower price environment that permeated 2016. We achieved a new record in storage this year, posting a 4.047 TCF number as we neared the end of November. Finally, we began to see our first real significant exports of LNG out of the Sabine Pass terminal, with increased volume to come in 2017. Overall a good year, but not without its challenges.
Based on our performance this year and in the past, we hope you would agree that we deserve some gifts, and we wanted to give you a quick list of what we are hoping to find in our stockings for the coming year.
- COLD COLD WINTER
As you know in the North Pole Santa, the colder the weather, the more wood for the fire to heat the elves’ homes. The same goes for us, the colder the weather and the longer the duration of the cold, the more demand for gas and the more pressure on prices. As an industry we’ve suffered through two straight generally mild winters, which have led to weak pricing heading into the new gas year. It would be very helpful to get a cold winter this year, specifically targeted over the Midwest and Northeast, and for it to hang around all the way through March. The impact on pricing from such an event would help us bring on more supply in these areas, and maybe incentivize us to increase exploration and increase the gas rig count from its record lows of 2016. While end-users may be unhappy with the increase in prices, we believe the addition of new supply would eliminate the potential for a major price shock in the market if a major demand event where to occur and more production is good in the long-term.
- MORE PIPES FOR THE MARCELLUS
With the growth of shale gas out of the Marcellus play in PA and OH, we have had difficulty getting this abundant volume to markets that need it. Pricing in the region has been deflated (we saw Dominion at sub-$1.00/Dth this year), and gas has had nowhere to go. There are several projects underway in the region including Rockies Express, Columbia Gas Transmission, and Tennessee Gas Pipeline to name a few, but they have either been slow to complete or not alleviated the surplus. More pipeline capacity flowing out of the Marcellus would be a welcome gift this year, especially to serve the Northeast (Constitution Pipeline completion), the Gulf of Mexico, and Mexico exports. If you wanted to throw in a shiny new LNG export terminal in the region that would be great as well, although wrapping it may be a chore.
- A NEW CLEAN POWER PLAN
We do know that Santa is apolitical, and think that’s a good strategy for a sovereign state operated out of unclaimed territory in the North Pole, however, we wouldn’t mind if you could deliver us a political solution under the tree this year. A delay in implementation or complete overhaul of the Clean Power Plan would definitely be a boom to our industry over the next few years. The battle with coal is over, and we have won, replacing it as the feedstock of choice for almost all new generation entering the U.S. electrical grid. The Clean Power Plan would muddy the waters for us, forcing natural gas to cede generation share to renewables including wind and solar. With the Clean Power Plan removed, natural gas would continue its dominance as the fuel of choice for the country’s growing power needs.
- THE NEXT BIG SHALE PLAY
As with any fossil fuel, the question always begs “Where next?” The Marcellus and Utica plays have changed the face of our industry, but they can’t pump out gas forever. Shale wells deplete at a much faster rate than traditional wells and with the increase demand for natural gas through the country and the world we believe a new shale formation would be beneficial to push gas into the next decade and beyond. Wolfcamp in Texas may be that play, with current estimates showing it to the be the largest oil/gas producing shale play in the U.S. However, the majority of the product in the region appears to be oil, which could limit activity in the region depending on the complex movements of the global oil market. We don’t want to be selfish, but a “gas-only” shale play would be nice, and would mean we wouldn’t have to share or work with some of the big bullies on the oil side of the fence.
So that’s our list for Christmas this year Mr. Claus. We appreciate your time and consideration and do hope you can find it in your heart to make our Christmas wishes a reality for 2017 and beyond.
You’ll find milk and cookies by the NYMEX screens.
The U.S. Gas Industry