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Permian basin offers long-term low-cost gas

Sep 18, 2018
4 min read
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Matt Schatzman, President & COE, Nextdecade Corporation, looks to the future of LNG across the globe and predicts a positive outlook for supplies from the U.S. in the years leading up to 2025

What are the main benefits of US LNG?

Continued evolution of the global LNG industry has resulted in more efficient liquefaction facilities, and we believe the U.S. is well- positioned to deliver a significant portion of the new capacity that will be needed to supply the global market by 2025.

We believe proven, large-scale liquefaction trains result in optimal plant configuration and use of common infrastructure (storage tanks, pipelines, jetties).

In the U.S., in particular, innovation in the upstream sector has, likewise, enhanced the availability of abundant, low-cost natural resources that provide feed gas into liquefaction facilities, enabling delivery of reliable, low-cost LNG to customers around the world.

At NextDecade, we are particularly excited to offer our customers access to associated gas from the Permian Basin. The production economics of the Permian Basin are driven by the production of oil – not by natural gas. Like many oil plays, there is a significant amount of natural gas associated with the production of this oil. However, unlike some areas that allow the gas to be flared to reap the economic benefit of the oil, Texas and New Mexico prohibit long-term flaring of natural gas.

Under these conditions, Permian producers must find a market for the associated natural gas to enable oil production. This, in turn, drives down the break-even economics of the natural gas to extremely low levels.

In fact, we believe the Permian Basin holds nearly 500 Tcf of natural gas at break-evens below $0. Thus, even if natural gas production in the Permian Basin grows to more than 25 Bcf/d, enough to feed multiple incremental LNG projects along the Texas Gulf Coast, we believe the Permian Basin can supply more than 50 years of gas at break-evens below $0.

This is a staggering revelation that, when combined with other major resource basins in the U.S., creates an incredibly competitive gas supply picture for the United States. This also represents a major opportunity for LNG buyers transacting with U.S. second wave projects, especially projects located on the Texas Gulf Coast.

Do you see a second wave of US LNG production coming?

We certainly do. The U.S. is rapidly emerging as an increasingly important player in the global LNG market. By the end of 2019, we estimate U.S.-sourced LNG could represent nearly 20 per cent of available supply. By 2025, this figure could grow to approximately 32 per cent of available supply. In other words, we expect the U.S. to emerge as the world’s largest supplier of LNG in the same time frame, due in part to market-leading EPC costs and the availability of abundant, low-cost natural resources.

Do you see growth in the LNG global market?

We are in the early stages of a prolonged period of structural demand growth in LNG.

In 2017, the global LNG market had grown to 290 mtpa, or by nearly 19 per cent since 2015. We now have more than three dozen countries importing LNG around the globe.

We expect global LNG demand growth to continue at an eight per cent CAGR to 2025 (526 mtpa). If investment in – and long-term commitments to – new liquefaction capacity are not made in the very near future, we believe global LNG demand could exceed available supply by as much as 150 mtpa by 2025. We believe only one-third of the supply shortfall may be satisfied by new projects outside of North America, leaving a significant portion of new capacity that will be needed from North America – and specifically the U.S. Gulf Coast – to supply the global market by 2025.

What is the significance of having Gastech take place in Barcelona? What do you hope to achieve at Gastech this year?

Gastech is a perennially significant conference for our industry. It reliably attracts the sector’s foremost leaders and contributors, and offers a significant opportunity for buyers, sellers, and other stakeholders to engage in meaningful discussion.

The event is particularly important in 2018, not just because we are in the early stages of a prolonged period of structural demand growth but because Gastech is taking place in Spain, a significant component of the global LNG market.

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