Artificial Barriers Keep World Markets Starved of Appalachia Natural Gas

PITTSBURGH — Appalachian gas fields can be a game changer in the energy market, said David Braziel, president and CEO of analyst firm RBN Energy, but first that natural gas needs a way to reach the world.

“U.S. gas, and Appalachian gas in particular, has the potential to change the world,” Braziel said at Hart Energy’s DUG Appalachia Conference and Exhibition on Nov. 30. “Just as long as we can get that gas to market; if it can break free of midstream constraints. And that’s not a given.”

From 2018 to 2022, LNG exports from the U.S. had a monstrous growth spurt, from an average of over 2 Bcf/d to an average of more than 10 Bcf/d in 2022. In the first six months of 2023, the U.S. led all other countries in LNG exports with an 11.6 Bcf/d average, according to the U.S. Energy Information Administration.

Over the past three years, the Russian-Ukraine war kicked off a surge of LNG demand in Europe for U.S. LNG, said Emily McClain, Rystad Energy vice president for North America gas markets, during a separate presentation at DUG Appalachia. From 2021 to 2022, Europe’s imports of U.S. LNG leapt to 63% from 27%, and those numbers should hold in the short term, according to Rystad’s projections.

However, the long-term direction of the U.S., Canadian and Mexican LNG export gas markets is still likely headed to Asia. By 2035, China, India and other East Asian countries will provide about 66% of the world’s LNG demand, McClain said .

The real story here is the growth in Asia and the demand for gas and LNG coming out of that region, and that narrative hasn't changed,” McClain said. “And the trajectory even through the 2040s, into 2050 will continue to show very firm needs or demand for gas and energy.”

The growing demand for gas and LNG is putting a focus on the Appalachia region. The Marcellus and Utica shales are easily the top U.S. dry gas fields, with an average production slightly over 30 Bcf/d, while the second-largest—the Permian and Eagle Ford basins—produce around 25 Bcf/d.

But Braziel said Appalachia supply has been capped — by non-market forces.

“If they could get more pipelines out of the region, in a world with no constraints, they could quickly ramp up to 40 Bcf/d. But of course, it's not that simple. It takes a literal act of Congress these days to get a new pipeline out of the region,” Braziel said, referring to the U.S. Congress’ action to clear legal hurdles facing the Mountain Valley Pipeline (MVP) as part of a budget compromise in June.

RELATED: Mountain Valley Pipeline’s ‘Phantom Takeaway’ Problem

The MVP, which runs from West Virginia to the southern region of Virginia, is expected to be completed in first-quarter of 2024 and will provide about a 2 Bcf/d pathway from the Marcellus and Utica to further open up mid-Atlantic and Southeast markets.

Currently only one LNG export terminal operates in the northeast—Cove Point in Maryland. Along the Gulf Coast, by contrast, another five LNG terminal projects are either under construction or planned.

Braziel noted that there are several other proposed transport projects to move more Appalachian gas to other regions of the U.S., either for export or domestic usage. One is the MVP Southgate project, which would extend the MVP into North Carolina. That project is facing the same type of opposition that stalled the MVP, Braziel said. Equitrans Midstream initially began building the MVP in 2018.

On the domestic side, demand for natural gas should also continue to rise, especially in electric production, McClain said. “With coal fire [power generation] facilities undergoing retirements, gas has been able to step in and penetrate the market that way.”

Braziel said the country should understand the potential of Marcellus and Utica gas. More than any other region, the Appalachian gas basins contain a supply that could alter the world market, but hurdles continue to see that production stymied.

“The degree to which we’re able to or limited in our ability to unleash more northeast production,” he said, “is going to have a profound impact on the global energy landscape for years to come.”