George Mitchell is considered the grandfather of shale gas and a lot has changed since he cracked the code of commercial scale horizontal drilling and multi-stage fracking in the Barnett in 2005. Here we are, ten years later, and the US natural gas market is many years into being supply long as a result of shale gas production. Natural gas demand is on the rise but not nearly as quickly as supply. Most forward views see the biggest demand gains from LNG exports, Mexican exports, industrial demand and power burn. Notice res-com is not on that list as energy efficiency and the capital required to bump another incumbent household fuel source out is high. Today we wanted to look at what res-com potential looks like and what states and, more specifically, counties present the biggest opportunities for pipeliners and utility distribution developers.
In the map below we have taken a county level look at household heating by fuel type on a scale of white to blue where white is utility gas and blue is “other fuels” (which in this case includes propane, electricity, fuel oil, coal and wood). As you would expect, there are some trends that pop out including 1) rural and mountainous areas tend to use “other fuels” than natural gas (ex. Virginia) 2) Southern states with mild winters tend to heat with electricity (ex. Florida) 3) Pacific Northwest states with cheap hydro power tend to heat with electricity (ex. Washington) and 4) the upper Midwest states have harsh winters and are well served by natural gas pipelines (ex. Illinois).
The map above explains why Kinder Morgan and Spectra have multiple pipeline expansions proposed into New England where Maine ranks 47th in the lower 48 states for household gas usage at 5% (68% of households use fuel oil, 13% wood and 7% propane). In addition, Spectra and NextEra are pushing the Sabal Trail Transmission project adding an incremental 1.0 Bcf/d into Florida which ranks last in the lower 48 for household utility gas usage at 5% of households (92% of households heat with electricity). Granted power generation is the target of this expansion.
In the map above, you can also see the top five states for natural gas usage are Utah at 85%, Illinois, Michigan, New Jersey and Colorado at 73%.
We looked at 3,143 counties in the US and sorted by the maximum number of households using “other fuels”. The top ten counties were: Los Angeles, CA, Maricopa, AZ (Phoenix), Miami Dade, FL, Harris, TX (Houston), Broward, FL (Fort Lauderdale), Dallas, TX, Palm Beach, FL, New York, NY, Hillsborough, FL (Tampa) and San Diego, CA. These ten counties represent 6.7 million households (of a total of 116 million in the US) or roughly 19 million people that don’t heat with natural gas. For example, of the 3 million households in Los Angeles, 1 million use “other fuels” for heat albeit Southern California is not known for its cold winters. Looking further north, King County Washington (Seattle) is 11th on the list with 55% of households using “other fuels” for heating or 440,000 households.
What is surprising is that of the 12 US states that are net exporters of natural gas (supply is greater than the state’s demand which includes: WV, PA, ND, WY, UT, CO, KS, NM, TX, OK, AR & LA) Texas and Louisiana rank the lowest for natural gas usage by household at 38% and 36% respectively see map below.
One other surprise was that the 2nd most productive natural gas county in the US (lower 48) is Susquehanna County PA with over 2.6 Bcf/d of production. While there are just 17,000 households in this county, only 398 have natural gas or 2.3%. With cheap and abundant natural gas on their doorstep, residents of this northeastern Pennsylvania county must be clamoring to have a choice in their heating fuel. There’s only one problem…how do you make the economics of a distribution pipeline project work with so few customers?
BTU Analytics’ Consulting Services group is constantly dissecting regional and local supply demand dynamics. We’ve completed projects for producers, marketers, utilities, midstream services, traders and private equity groups on a variety of energy topics involving fundamental analysis and market risk.