Special Report: Energy and Capital's Natural Gas Outlook: 2018 and Beyond

The most important moment in the history of natural gas occurred on November 10, 2004.

I know what you’re thinking: Aren’t you forgetting the first commercial gas discovery in Fredonia, New York? Wouldn’t William Hart’s 27-foot well be a better choice?

After all, he is the father of natural gas.

Normally, I would agree with that argument. However, something happened on November 10th that changed the face of the U.S. natural gas industry forever.

That day, Range Resources drilled the first well in the Marcellus Shale.

And it’s the Marcellus Shale that has single-handedly propped up the U.S.’ natural gas supply.

Now, I understand that Texas is our largest natural gas producer. In June 2017, approximately 565.7 billion cubic feet (ft.3) of natural gas was extracted from beneath Texas soil. This accounts for one-quarter of our total marketed gas production.

But let’s be fair: Texas has dominated U.S. energy production for more than a century. In fact, marketed gas production from Texas has actually declined since December 2014.

Pennsylvania is a different story.

Up until 2010, natural gas production in the Keystone State has been essentially nil.

It wasn’t until the Renz 1 well was drilled that companies started to realize the potential blockbuster play at stake.

Once that first well was completed, it was only a matter of time before the Marcellus was unlocked and tapped.

Between 2010 and 2016, natural gas production in Pennsylvania soared, and it seemed as if nothing could slow it down:

marcellus1

But this surge in supply has had several effects, not the least of which is that production growth in the Marcellus Shale has masked output declines virtually everywhere else.

Let me show you just how huge of a role shale gas plays in our current supply picture:

prodnatgas

This new supply, however, also led to a massive supply glut as drillers started digging wells at a frenzied pace.

In 2018, we can fully expect U.S. year-over-year gas production to increase again. The Energy Information Agency (EIA) is projecting that our domestic production will rise 4.4 billion ft.3 per day over 2017 levels, which amounts to about 78.1 billion ft.3 per day.

Meanwhile, natural gas spot prices at the Henry Hub are also expected to rise next year, averaging $3.29 per million British thermal units (mmBtu) in 2018.

On the demand side of the equation, U.S. natural gas consumption remains at record levels. Here’s a breakdown of our natural gas consumption over the last few years:

consumgas

Yet, the U.S. natural gas market is only one piece of the picture here, which brings us to one serious growth catalyst for natural gas going forward: liquefied natural gas (LNG).

The LNG Wildcard

No outlook would be complete without discussing liquefied natural gas.

Back in 2013, I told you flat out:

Between 2014 and 2018, the global LNG trade will find itself front and center among potential natural gas investments. Not only can we expect the LNG market to remain tight next year, but this bull market should last for decades.

Take one quick glance at the chart below and tell me I’m wrong:

uslngexports929

Make no mistake: This is how the U.S. will ultimately become a net energy exporter within just five years.

In fact, the U.S. could even become the world’s largest LNG exporter within a few years.

Fatih Birol, the IEA’s executive director, recently told us: “The U.S. shale revolution shows no sign of running out of steam and its effects are now amplified by a second revolution of rising LNG supplies.”

Although the IEA is being a little too optimistic about future U.S. shale production, there’s no denying the impact it’s having on the market.

Beyond 2018, LNG will be a huge part of the U.S. energy trade.

So, where’s all this U.S. LNG headed? Good question.

Well, here were the top destinations for U.S. LNG in 2016:

lngimportsdest

More importantly, our list of LNG customers is growing rapidly...

About 12 years ago, there were only 15 countries even consuming LNG. Today, that number has swelled to nearly 40. So, it’s only natural that the U.S. — the world’s largest natural gas producer — not only penetrate the LNG market but dominate it.

Catching the trend early will always give you a leg up over the investment herd.

And just to put a little visual perspective on how much LNG exports will dominate U.S. natural gas exports, I feel this chart is worth a thousand words:

usdominate

The growth explosion that's about to take place in the U.S. natural gas trade within the next five years is the single greatest investment you can bank on in today’s market.

But that buying opportunity is closing fast...


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