Long Term Gas Outlook

May 15th, 2018 |

The main challenge in creating a Long-term Henry Hub forecast is that it requires many assumptions.  While current infrastructure, supply costs and known resources provide guideposts for future production and supply in the short term, the past decade has proven that changes in technology can turn our understanding of market dynamics on its head, with supply shifting to new regions, new infrastructure being developed, and imports becoming exports.  Similarly with demand, LNG, Mexican exports, power, and electric vehicles have all forced analysts to reconsider common, long-term beliefs. With this in mind, there is a focus on creating a transparent methodology for a Long Term Gas Outlook, one that allows readers to better see how different assumptions might change outcomes over the next 30 years.  In addition to transparent methodology, we also thought it prudent to include our Base, Low and High cases (along with assumptions) for Supply, Demand and Henry Hub Pricing.

Starting with Supply.  In BTU’s newly release service (The Long Term Gas Outlook), we clearly and concisely define how we are projecting supply over the 30-year time frame that the service covers.  By utilizing our well-level breakeven analysis, BTU’s drilling forecast, BTU’s inventory depletion model, and in-depth knowledge of North America’s natural gas midstream market, we are able to create an Inventory Depletion model indicating how quickly we work through major basins.  Clearly, there are considerations to be made for technology advances, horizons, lateral lengths, imports, and global markets, to name a few.  The Long Term Gas Outlook not only makes the considerations, but also clearly defines our assumptions.  No Black Boxes.

 

Next, Demand.  Assumptions on the demand side are certainly just as, if not more, complex than assumptions needing to be made on the supply side.  While all the standard buckets of demand are thoroughly covered in the report, one of the most impactful buckets over the 30-year term will be Global LNG demand (power is quite interesting too, considering renewables, nuclear retirements, coal, combined cycles…but we’ll save that for another blog). To project LNG demand, BTU incorporated global GDP scenarios to create Base, High, and Low cases.  After that, BTU developed our view on how much of that demand the US can capture.  Again, with all assumptions clearly defined. No Black Boxes…except on the following graphic.

 

While we believe the above methodology creates a transparent and logical forecast, we are also aware that clients will desire analysis that is tailored to their internal views.  To facilitate this, we offer “custom runs” of the model for subscribers to this service. While the custom runs are not free, I think we all know the saying.  CLICK HERE to learn more and request a sample of the Long Term Gas Outlook.

 

Author: Mason Ender

Mason Ender is a partner at BTU Analytics, LLC and managing director of business development overseeing client relations, marketing, and sales. Prior to joining BTU Analytics, he was the Manager of Sales for Bentek Energy, a division of Platts. Mason has worked with energy companies both domestically and internationally to implement effective fundamental energy analytic solutions. Mason also routinely presents energy market dynamics informing the market of upcoming risks and opportunities.