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Price Uncertainty – The End of the Infrastructure Boom?

While volatility in gas and oil prices is welcomed by traders, it makes long-term infrastructure planning challenging. Many companies that previously announced large capital investments in infrastructure are now shelving projects until the market settles.  Within the last month we’ve seen a $14 B gas-to-liquids project by Sasol and a $2 B Ethane cracker project with Axiall announce project delays.  Oneok also announced that it has suspended plans to build three natural gas processing facilities in the Williston Basin, Oklahoma, and the Powder River Basin totaling 300 MMcf/d of processing.  These delays are largely driven by the fact that the outlook for gas, oil, and NGL production has changed significantly over the past few months.

In October, when BTU Analytics projected average Lower 48 gross gas production based on rig activity at the time, it was expected to average 99.8 Bcf/d in 2019 and NGL production was expected to grow by 1.3 MMb/d on annual average basis between 2014 and 2019.  Despite the fact that oil prices were starting to fall, the momentum gained throughout 2014 was tremendous and as a result, production for all three commodities has remained strong through the beginning part of 2015.  However, producers have reacted aggressively to tumbling oil and liquids prices and sustained weak gas prices. BTU Analytics’ February forecast incorporates changes in industry cash flow, well productivity, and comparative well economics, resulting in much lower production levels across all three commodities by 2019 than previously forecasted.  However, average annual growth is still expected over the next 5 years, albeit at a much slower pace.  Average natural gas production is now expected to be 90.3 Bcf/d and NGLs are expected to only grow 750 Mb/d by 2019, with the majority of growth occurring between 2015 and 2017.  The major driver of liquids growth is still expected to be the Utica and the Marcellus and associated gas from oil plays in the Eagle Ford, Permian, and Bakken will be substantially reduced.  As the market continues to gain a better understanding of how prices will impact production, BTU Analytics expects to see more projects shelved until prices to recover.

Lower 48 NGLs Production Forecasts
Lower 48 NGLs Production Forecasts

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Erika Coombs is Manager of Consulting Services at BTU Analytics. She leads the team to deliver customized energy-market analysis and provides BTU Analytics’ customers with critical information for a variety of energy markets including oil, gas, and NGLs from wellhead to downstream markets. She also leads research on upstream analysis, crude oil midstream infrastructure, breakeven economics, and commodity pricing dynamics for several BTU Analytics’ reports. She holds a M.S. in Mineral and Energy Economics from the Colorado School of Mines.

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