LNG Exports To Boost Dry Gas Drilling, Underscore America’s Resource Vitality

Thursday, May 22, 2014

DENVER–The winter of 2013-14 served as an abrupt reminder that natural gas prices are highly sensitive to weather fluctuations, reducing mid-February storage volumes to their lowest seasonal levels in a decade and pushing NYMEX prices to $7-$8 an MMBtu. While U.S. liquefied natural gas exports will not impact the market anywhere nearly as dramatically as weather, they do have the potential to consistently help maintain prices at levels sufficient to bolster dry gas activity and increase domestic supply availability.

The strengthening of prices from LNG exports is expected to start in 2016, as export terminals come on line and add trains to reach their planned capacities. Average annual prices will surpass $5 an MMBtu in absolute terms by 2022. After adjusting for inflation, they likely will average around $5/MMBtu at least until 2035, with occasional price fluctuations that LNG will serve to temper.

The modest price increase will have a limited effect on the economics of oil and wet gas plays, but it will increase significantly the profitability of dry gas shale plays such as the Fayetteville, Haynesville and parts of the Marcellus. By 2018, rates of return in these plays should exceed 20 percent, enough to justify additional drilling. For the complete article, please click here.