NGA ISSUE BRIEF: Supply Outlook

SUMMARY
  • U.S. natural gas resource base is extensive and varied
  • Shale gas now represents 71% of total U.S. natural gas reserves
  • Appalachian production transforming Northeast market dynamics
  • LNG imports provide market flexibility in Northeast

With its extensive natural gas resource base and new technology innovations, the United States has become the largest producer of natural gas in the world.

U.S. Gas Resource Base Remains Extensive

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 71.3% of total U.S. natural gas reserves, compared to about 38% in 2011 (source: U.S. EIA, 1-21).
In March 2021, U.S. EIA reported that U.S. natural gas production, which set a new record in 2019, declined by 1% in 2020, due to the impact of the COVID-19 pandemic on demand and the disincentive of low prices. At the same time, growth in the Marcellus/Appalachian region actually continued in 2020. EIA noted: "The Appalachia region remains the largest natural-gas producing region in the United States. Natural gas production from the Marcellus and Utica/Point Pleasant shales of Ohio, West Virginia, and Pennsylvania continued to grow despite low regional natural gas spot prices. Natural gas production from these three states increased from 32.1 Bcf/d in 2019 to 33.6 Bcf/d in 2020."
This supply news was underscored in September 2019 when the Potential Gas Committee released its 2018 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 3,374 trillion cubic feet (Tcf). This is the highest resource evaluation in the PGC's 54 year history - exceeding by 557 Tcf the previous record-high assessment from year-end 2016.
The PGC noted that shale gas accounts for 62% of the country's total "traditional" potential resource, at 2,107 Tcf. Furthermore, "the Atlantic area ranks as the country's richest resource area with 39% of total U.S. traditional resources," led by the Marcellus and Utica shale plays in the Appalachian basin.

Chart: U.S. EIA, March 2021


In January 2021, the U.S. Energy Information Administration (EIA) released a report entitled "U.S. Crude Oil and Natural Gas Proved Reserves" for 2019. Among its observations:
  • "[O]perators in the northeastern U.S. reported significant additions of proved reserves. Operators in the state of Ohio reported the largest net increase in proved natural gas reserves of all States in 2019.Pennsylvania had the second-largest natural gas proved reserves increase."

  • "The Marcellus shale play remained the play with the largest amount of proved reserves of natural gas from shale in 2019. Proved reserves in the Marcellus increased by 4.3 Tcf (3.2%) in 2019."

Pennsylvania leads the state rankings for natural gas proved reserves from shale in 2019, with 105.4 Tcf, followed by Texas at 93.5 Tcf.
Look for the full report here: http://www.eia.gov/naturalgas/crudeoilreserves/

Pivotal Role of Shale and Other "Unconventional" Resources


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.
Production in the Appalachian region has grown strongly in the last few years, to 33 billion cubic feet per day as of early 2021.
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: Longstanding Part of U.S. Supply Mix, amid Changing Bilateral Trade Patterns


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.

Canadian exports to the U.S. West and Midwest are generally steady, but exports to the Eastern U.S. have declined over the last decade, reflecting the rise of U.S. Appalachian production. From 2008 to 2020, Canadian natural gas exports to the Eastern U.S. decreased from 2.7 Bcf/d to 0.8 Bcf/d, a two-thirds decline (source: Canada Energy Regulator). In June 2021, the Canada Energy Regulator (CER) noted: "The rise in shale gas production in the U.S. Northeast region has displaced some of the gas traditionally supplied by western Canadian producers. Imports from the U.S. have increased 33% between 2015 and 2019, coming almost entirely from the U.S. East region... The TC Canadian Mainline's Niagara point has imported natural gas since 2012, and its Chippawa point has imported natural gas since 2015. Both points were former export points that were reversed so natural gas could flow into Ontario from the Marcellus and Utica shales of the Appalachian Basin. In 2017, TCPL also changed the Iroquois, Ontario point so gas could flow bi-directionally. While Iroquois continues to primarily export gas, it has periodically imported gas from 2018 onward."

The CER also notes that the end of the Sable Island production field offshore Nova Scotia in late 2018 has led to the Maritimes Provinces primarily importing via the pipeline system in New England. The CER noted in June 2021: "The Maritimes was once supplied by natural gas produced in offshore Nova Scotia, with some volumes of gas imported during peak times from the U.S. and globally from the Canaport LNG terminal in New Brunswick. Nova Scotia's offshore natural gas production declined since 2014 and was finally shut down in mid-2018. Since 2015, natural gas has been increasingly imported through St. Stephen, New Brunswick, from the U.S. on the bi-directional M&NP Pipeline. Today, St. Stephen primarily imports natural gas, after mostly exporting until 2015."

The bi-directional Canada-U.S. trade will remain valuable, as a reliable energy relationship for both sides of the border.


LNG Remains Valuable to Key Markets - Such as
New England & the Northeast


Photo: Everett LNG

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 several 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, 1-21 (with 2019 data)

Potential Gas Committee, 2019 update

Canada Energy Regulator (CER): Canada's Pipeline System, June 2021

U.S. Dept. of Energy: LNG Annual Reports