NGA ISSUE BRIEF: Supply Outlook

SUMMARY
  • U.S. natural gas resource base extensive and growing
  • Shale gas now represents 70% of total U.S. dry natural gas production
  • Appalachian production transforming Northeast market dynamics
  • LNG imports provide market flexibility in Northeast
Chart: U.S. EIA, March 2019

For U.S. natural gas supplies, the news is positive: an era of abundant domestic supplies has arrived.

U.S. Gas Resource Base Continues Growth

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 70% of U.S. dry natural gas production, compared to 16% in 2008 (source: U.S. EIA, 1-19).
In March 2019, U.S. EIA reported that U.S. natural gas production reached a new record in 2018, 11% higher than the previous year. EIA noted: "The Appalachian region remained the largest natural gas-producing region in the United States. Appalachian natural gas from the Marcellus and Utica/Point Pleasant shales of Ohio, West Virginia, and Pennsylvania continued to grow, with gross withdrawals increasing from 24.2 Bcf/d in 2017 to 28.5 Bcf/d in 2018."
This positive 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, 8-17


In November 2018, the U.S. Energy Information Administration (EIA) released a report entitled "U.S. Crude Oil and Natural Gas Proved Reserves" for 2017. It found that "Proved reserves of natural gas increased by 123.2 trillion cubic feet (Tcf) (36.1%) to 464.3 Tcf at year-end 2017-a new U.S. record for total natural gas proved reserves." The report also found that "Pennsylvania added 28.1 Tcf of natural gas proved reserves, the largest net increase of all states in 2017, as a result of increased prices and development of the Marcellus and Utica shale plays."

Among other interesting highlights, EIA notes that "Pennsylvania had the most natural gas proved reserves from shale in 2017 (89.5 Tcf)... The Marcellus remained the play with the largest amount of natural gas proved reserves from shale in 2017. Its proved reserves increased in 2017 by 47%." Look for the full report here: http://www.eia.gov/naturalgas/crudeoilreserves/

Transformative Potential of Shale and Other "Unconventional" Supplies


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 just the last few years, to nearly 30 billion cubic feet per day as of summer 2018.
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: Important Part of U.S. Mix, but Declining Exports into U.S. Anticipated


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. From 2008 to 2017, Canadian natural gas exports to the Eastern U.S. decreased from 2.7 Bcf/d to 0.7 Bcf/d, a three-quarters decline (source: National Energy Board of Canada). Canadian exports to the U.S. West and Midwest are generally steady, but exports to the Eastern U.S. have declined considerably, reflecting the rise of more local Marcellus production. Canada's National Energy Board (NEB) stated in June 2016 that "net pipeline exports of natural gas from Canada could decline to essentially zero by 2040."
The NEB noted in March 2018 that "for decades the TransCanada Mainline has been used to export natural gas from western to eastern Canada and into New York State. However, the eastern portion of the pipeline is now being used to import natural gas from New York into eastern Canada."


LNG Potential Remains Valuable to Key Markets


Photo: Distrigas

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 four 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, 11-18

Potential Gas Committee, July 2017 update

MIT Energy Initiative, "The Future of Natural Gas," June 2011 report