Five years ago, the U.S. overtook Russia as the No. 1 gas producer in the world. With the advent of liquefied natural gas (LNG), the United States is rapidly propelling itself into the global LNG spot market.
In only 21 months, U.S. LNG producers have gone from exporting nearly nil to almost 2 billion cubic feet of gas per day (BCFD) – to 25 different countries. Global demand for gas has been steadily rising, and it is projected the U.S. could be exporting almost 10 BCFD by 2025.
However, the intricacies of global competition and politics have large impacts on which nations will win this exploding LNG race. In particular, Qatar, Australia and Malaysia/Thailand have huge reserves, excellent geographic access to the red hot Asia market and an enviable head start. In addition, Russia has monstrous gas accumulations, very ambitious short term pipeline plans, and long term LNG visions. But these gas-rich countries are not without internal complications, or immune from cross-continent rivals.
The combination of shale gas technology and natural gas mobility has allowed the U.S. to be a natural gas net exporter for the first time in almost 60 years. Since 2008, the United States has increased its natural gas marketed production from 55 BCFD to over 78 BCFD, and production will not peak anytime soon.
In Northwest Colorado, the Piceance basin alone is estimated to have 67 trillion cubic feet (TCF) of recoverable gas reserves. Critical to marketing these substantial reserves is increased demand; therefore, a newly proposed LNG plant in southwest Oregon is drawing wide attention. This plant would create the most direct access to the burgeoning Asian market for U.S. suppliers, creating a strategic geographic advantage over the dominant gulf coast exporters. Just this past August, Japanese representatives met a western Colorado delegation in Grand Junction to discuss the subject.
In the Four Corners, the San Juan Basin is gradually experiencing its own rejuvenation via the upstart Mancos Formation and increased drilling for coal seam gas. Preliminary estimates indicate over 100 TCF could be potentially recoverable in the Mancos, and new players such as Hilcorp Energy and Enduring Resources plan to infuse substantive risk-capital into the basin in the near future.
Established operators, WPX and BP, have publicized recent high-rate wells. BP’s newest Mancos well flowed over 13 million cubic feet of gas/day, and quoting BP’s CEO Dave Lawler, “This result supports our strategic view that significant potential exists in the San Juan Basin, and gives us confidence to pursue additional development of the Mancos, which we believe could become one of the leading shale plays in the U.S.”
The San Juan basin currently has significant pipeline capacity and multiple directions to send its gas resources. In particular, the emerging Mexican market offers tremendous upside. The combination of Mexico’s rapidly decreasing domestic production, and privatization of its electricity market in 2013, resulted in U.S. exports to Mexico doubling since 2013 (approximately 4.5 BCFD), and this number could double again in the next two to three years.
Rapidly expanding solar and wind power will continue to increase their respective market share and provide substantial environmental benefits but, at present, they unfortunately represent less than 5 percent of our global energy needs which are ever-increasing.
In China alone, LNG demand has increased 43 percent just since the beginning of this year. Presently, there are over 1 million air pollution-related premature deaths in China per year, significantly adding to the pressure to eliminate their more affordable, environmentally unfriendly coal.
Neighboring India has over 240 million citizens still without electricity, and only 4 out of 100 own a vehicle, compared to 88 of 100 in the U.S.
Mexico’s need to decarbonize has resulted in dramatic decreases in its reliance on dirty fuel oil to produce power. Because Pemex, Mexico’s state-owned petroleum company, has poorly managed their own resources, Mexico now imports 60 percent of its natural gas from U.S. producers, compared to just 22 percent in 2010.
Notwithstanding a sizable international skirmish, it’s likely there will be a cap on oil prices for the foreseeable future. Therefore, the intermediate and long-term positive implications for job creation and increasing profit margins in the energy sector potentially lie in the areas with the most direct access to Mexican and Asian gas demand centers.
Although this could be one to three years in the making, the southern Rockies could be well-positioned for bullish long term economic gains.
Natural gas has been called the “bridge fuel” for decades. Maybe the time has finally come to make this a reality.
Tim Rynott of Durango is a petroleum geologist, owner of Ridge Resources, LLC and president-elect of the Four Corners Geological Society. Reach him at tlrynott@gmail.com.
The full-length version of this column can be read at durangoherald.com/opinion.
