No Joy in Mudville*: Shale Gas Stalls, LNG Export Dead On Arrival

Something unusual happened while we were focused on the global oil-price collapse–the increase in U.S. shale gas production stalled (Figure 1).

U.S. Shale Gas Prod 30 July 2015
Figure 1. U.S. shale gas production.  Source:  EIA and Labyrinth Consulting Services, Inc.

Total shale gas production for June was basically flat compared with May–down 900 mcf/d or -0.1% (Table 1).

Shale Gas Prod Change Table 30 July 2015
Table 1. Shale gas production change table.  Source:  EIA and Labyrinth Consulting Services, Inc.

Marcellus and Utica production increased very slightly over May, 1.1 and 1.5 mmcf/d, respectively. The Woodford was up 400 mcf/d and “other” shale increased 300 mcf/d. Production in the few plays that increased totaled 3.3 mmcf/d or one fair gas well’s daily production.

The rest of the shale gas plays declined.  The earliest big shale gas plays–the Barnett, Fayetteville and Haynesville–were down 25%, 14% and 48% from their respective peak production levels for a total decline of -4.8 bcf/d since January 2012.

The fact that Eagle Ford and Bakken gas production declined suggests tight oil production may finally be declining as well.

To make matters worse, total U.S. dry natural gas production declined -144 mmcf/d in June compared to May, and -1.2 bcf/d compared to April (Figure 2). Marketed gas declined -117 mmcf/d compared to May and -1 bcf/d compared to April.

Chart_U.S. Natural Gas Prod 30 July 2015
Figure 2. U.S. natural gas production.  Source:  EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

Although year-over-year gas production has increased, the rate of growth has decreased systematically from 13% in December 2014 to 5% in June 2015 (Figure 3).

Chart_Dry Gas YOY 30 July 2015
Figure 3. U.S. dry gas year-over-year production change.  Source:  EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

This all comes at a time when the U.S. is using more natural gas for electric power generation. In April 2015, natural gas used to produce electricity (32% of total) exceeded coal (30% of total) for the first time (Figure 4).

20150716_itn
Figure 4.  Monthly shares of total power generation by fuel, 2001-2015.  Source: EIA.

This is partly because of low natural gas prices but is mostly because of EPA clean air regulations that went into full effect in 2015 that are forcing retirements of older coal plants.

For now at least, the U.S. is producing less natural gas because shale gas is stalled and conventional gas production is in terminal decline at 10% per year. The country is consuming more gas for electric power generation thanks to government regulations, and we are poised to export more gas outside the country both as LNG and as pipeline gas to Mexico.

Combined LNG and pipeline exports plus coal-plant retirements are estimated to total 7 bcf/d of gas this year (10% of forecasted lower 48 states production), 12 bcf/d in 2016 (17%) and  18 bcf/d by 2020 (25%) (Figure 5).

Brilliant.

Chart_Total Exports LNG+Pipeline
Figure 5. U.S. natural gas export and coal plant retirement forecast.
Source:  EIA, SENER (Mexico Secretary of Energy) and Labyrinth Consulting Services, Inc.
(click image to enlarge)

Meanwhile, the global price of LNG is in the gutter.  Landed prices in Asia are now less than $8 per mmBtu and, in Europe, are less than $7 per mmBtu (Figure 6).

FERC LNG Landed Prices June 2015_Cropped
Figure 6. World LNG estimated June 2015 landed prices.  Source: FERC.
(click image to enlarge)

The appeal of U.S. LNG export was that prices in Asia were more than $15 per mmBtu and more than $11 in Europe before mid-2014.  Because LNG price is linked to crude oil price, all that changed when oil prices collapsed.  Also, demand has fallen considerably and nuclear power options are being re-started for power generation in Japan.

The cheapest “tolled” export option (e.g., Cheniere’s Sabine Pass Project) breaks even at about $9.30/mmBtu based on $3.00 Henry Hub price plus 15% tolling (Figure 7).

Chart_Landed Costs 30 July 2015
Figure 7.  Break-even North American LNG project costs.  Source:  Royal Bank of Canada and Labyrinth Consulting Services, Inc.
(click image to enlarge)

Woops!  LNG export from the U.S never made competitive economic sense to me but now, it looks dead-on-arrival.

The other big appeal of LNG export, of course, was that we had 100 years of the stuff so it wouldn’t affect our supply or the price by very much. Now supply is stalled and demand is rising. If this continues, price increases won’t be far behind.

Despite a potential reality check in December 2014 during The Fracking Fallacy Controversy, the EIA Annual Energy Outlook 2015 forecasts ever-increasing gas supply out to at least 2040 (Figure 8).

Chart_Gas + Shale Gas 31 July 2015
Figure 8.  EIA total natural gas forecast.  Source:  EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

The stalling of gas production is a temporary anomaly but it is also a red flag. In July 2015, the future for cheap and abundant natural gas for decades looks increasingly uncertain.

————————————————————————–
*The Saga Of Casey, Ernest Lawrence Thayer.

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Persnickety
Persnickety

My region depends on coal for 80-90% of our electric power. Thanks to Osama errr Obama, our coal plants are all scheduled to be shut down within 8 years or less. Supposedly a big natural gas-fired electric plant will replace them. This has two very obvious problems:
1) Natural gas isn’t locally produced and has to be transported 500+ miles by pipeline to get here, and
2) Natural gas is a dumb choice for baseload generation, which is what the coal plants provide and what needs to be replaced.

Anyway, those are the stupid-obvious problems with the plan. The other BIG problem, which may be obvious once you’ve read the above article, is that natural gas is not going to be cheap and abundant at the time when our coal plants are turned off for good and the natural gas plant is supposedly taking their place.

It’s not hard to predict skyrocketing power costs and some degree of shortages here.

yahsure
yahsure

When society collapses i don’t think the plants will be working. There will not be any jobs and the resulting wages to pay for service. Plan for how you will survive such a situation.
The coal industry needed to make its product cleaner.It hasnt and is being replaced.I have read that we have around 100 years of NG. Maybe something else will be thought of to replace that.
Hydrogen,Thorium,Algae. I root for the nerds of society that come up with new things.

card802
card802

Uh…..buy the dip?

Our coal plant will be shut down in 2016, we’re supposed to get our power from the east side of the state, how that all works remains to be seen, I guess with Detroit closing down they need to get their power purchased by somebody.

Ohio State claims to have come up with clean coal technology and it’s prototype unit produced heat from coal while capturing 99 percent of the carbon dioxide produced in the reaction.

But liberals who claim that electric cars, solar panels and windmills made in China are the future and leave no carbon footprint point out the “fact” that Ohio State was only able to capture 99%

What a bunch of fucknut maroons.

Anonymous
Anonymous

Persnickety,

Why is natural gas a “dumb choice” for baseload generation?

I’m not seeing the difference other than the type of burners and fuel supply delivery, everything else seems the same to me – and natural gas seems easier to produce and use compared to coal.

Persnickety
Persnickety

@Anon – nice name btw – there are multiple reasons natural gas is a bad choice for baseload. Let’s start with the natural gas industry’s own lobbying feel-good effort. Look at this:

http://www.encana.com/pdf/natural-gas/power-generation-costs.pdf

What do you see in the supposedly better natural gas column? Under their own IDEAL circumstances, amid a historic low in natural gas prices, the variable cost of the gas itself is more than half the total cost of the power delivered. They acknowledge this while magically assuming that all other costs of a NG baseload plant are dramatically lower than for other fuels, which is somewhere between dubious and absurd. Relatively minor and likely swings in NG prices destroy the economics of the NG plant relative to other fuels.

Natural gas is not easy to store in quantities useful to a baseload plant. If you happen to have a large underground salt dome structure you might have storage, otherwise you don’t have more than maybe a few hours’ worth at most. Any supply disruption and your “baseload” plant goes offline very quickly. Compare to a coal plant that could easily have one to several months of coal on site at the plant.

In much of the country, and particularly the areas likely to go to NG baseload due to phasing out coal, the existing pipeline infrastructure is barely adequate, or even somewhat inadequate, for cold winter heating demand, before adding NG power generation plants. Much of the Northeast won’t be able to supply NG power plants while allowing people to heat their houses in a cold snap. Did I mention the limited ability to store NG locally?

If there is a coal or oil shortage in one location, it is very simple to transport more in by ship, barge or railroad, and it may not even cost any more than the routine shipments. If there is a natural gas shortage somewhere, unless that place has a LNG port it’s not even possible to ship more in than the pipelines can accommodate, and even with an LNG receiving port (I’m not sure anywhere in the US has one) it’s far more expensive than the standard price. Pipeline infrastructure can be upgraded in timelines of 5-15 years, but there is a lot of speculation on both use and production that goes into doing so, and it may not work out well. Even if it does, it may be on a timeline that leaves major disruptions between the planning process and completion.

SSS

Snick

Excellent comment @ 10:26 pm. Excellent. I learned something about coal vs. natural gas that I had never considered before. But I did know that the upper Midwest is likely the first region of the country to suffer from the War on Coal, particularly during a long, cold winter.

Go long on firewood, amigo.

Zarathustra

Our allies, the Saudis; our enemy, the Iranians. You choose.

Persnickety
Persnickety

@SSS, thanks. I think parts of the Northeast (New England in particular) may actually suffer the most because they are so far from the natural gas producing areas, have limited pipeline capacities and little alternative. On the plus side they have a decent electric grid and can buy power from Quebec. The northern edge of the Midwest is closer to NG production but still has pipeline limits and has fewer options to buy or import power from elsewhere. Neither region is good for solar or especially good for wind, and both have used most of the hydro potential available, which wasn’t much to start with.

There are three relatively good baseload sources: major hydro, nuclear, and coal. Hydro is mostly fully exploited. Coal pollutes badly but it works. Nuclear works but has marginal economics and we desperately need new plants, not life extensions on horribly obsolete plants. All three suffer from NIMBY and extreme shortsightedness by politicians and consumers.

Solar is making gains and long term we might, maybe, possibly, see areas like yours doing tons of solar and selling the power beyond the local area. I’m not sure if we can or will get there before the voluntary coal phase-out and the seemingly obvious problems with NG as a replacement cause major issues nationally, first in pricing and probably ending up in supply and blackout issues. The Northeast and parts of the Midwest are likely to have a predicament between curtailing natural gas to houses and other buildings for direct heating use vs. keeping electricity production going. If you use too much NG from the pipeline you literally get low pressure and this can cause reliability and safety issues in many gas appliances. If you direct gas to electric production at the expense of domestic supply you may have people running electric space heaters to keep warm, a hugely inefficient use of NG that will strain the grid. If you direct it to domestic supply and run out of electric power then most furnaces will stop working anyway. The coldest days tend to be calm, so wind power will be curtailed, and in the dead of winter, so local solar won’t be of much use.

If all people were smart and rational some of the newer nuclear generation concepts would probably be the best approach. And if pigs could fly I wouldn’t get to eat as much bacon.

card802
card802

We I guess if they can’t fake a crisis, they may as well create a crisis, how soon before the people forget who caused the problem and beg the government to fix the problem?

Isn’t this typical politics though, and the pawns suffer.

“WASHINGTON — In the strongest action ever taken in the United States to combat climate change, President Obama will unveil on Monday a set of environmental regulations devised to sharply cut planet-warming greenhouse gas emissions from the nation’s power plants and ultimately transform America’s electricity industry.

The rules are the final, tougher versions of proposed regulations that the Environmental Protection Agency announced in 2012 and 2014. If they withstand the expected legal challenges, the regulations will set in motion sweeping policy changes that could shut down hundreds of coal-fired power plants, freeze construction of new coal plants and create a boom in the production of wind and solar power and other renewable energy sources.
As the president came to see the fight against climate change as central to his legacy, as important as the Affordable Care Act…………….”

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