Emerging global markets, liquefied natural gas (LNG) projects and increased coal plant retirements represent growing opportunities for the natural gas industry even as low-price conditions hinder capital investments. This outlook, found in Black & Veatch’s just-released 2016 Strategic Directions: Natural Gas Industry Report, reflects widely varying market outlooks for the upstream, midstream and downstream segments. Yet, after a challenging two-year period for the industry, optimism remains strong as organizations across the value chain adapt for future growth.
Producers are employing advanced technology solutions, targeted program management services and a greater focus on efficiency and maintenance to wring as much revenue from operations as possible in a down market. Midstream and downstream companies are also keenly focused on safety, driven by high-profile natural gas leaks and growing concerns that technology has opened new vectors for hackers and other security threats to disrupt critical systems. Safety, including physical and cybersecurity, was identified by 70 percent of survey respondents as their top long-term industry issue.
“Sustained low natural gas prices are forcing much of the industry to create efficiencies without sacrificing safety and reliability. Safety’s intersection with cybersecurity and physical security at the distribution level must also be carefully evaluated as technology is increasingly used to boost system performance.”
John Chevrette, President of Black & Veatch management consulting
Power Market Opportunities
The report analyzes how coal plant retirements and lower operating dispatch costs have moved natural gas to its place as the primary energy source in the United States. In addition to climate related regulatory actions like the Clean Power Plan and Paris Accords, the report also explores the links between rising use of distributed energy resources (DERs) and natural gas energy. Utilities will likely be impacted most by the growth of these energy sources, and may be required to adopt new rate models to comply with regulations that incentivize their use. As such, 81 percent of local distribution companies (LDCs) and utilities agreed with the greater respondent population, which listed regulatory compliance as the top industry challenge.
Global Markets Respond to Low Prices
Upstream and midstream participants are coping with low prices by rewriting capital investment plans. This includes redirecting much of their focus to internal operations enhancements, which 71 percent of respondents listed as a current strategy. In some cases, organizations are concentrating on merger and acquisition activity to enhance balance sheets and gain access to untapped markets. Downstream firms, meanwhile, are taking advantage of lower feedstock prices to invest in new projects – such as conversions to ammonia and fertilizer. As the market continues to evolve, planning and coordination with interconnected energy markets and infrastructure investment will be integral for industry leaders ahead of a potential price correction shaped by geopolitical events or other market forces.
“For investors and project developers seeking to deploy capital in the gas sector, perhaps the best time to invest is now, when capital costs are lower,” said Hoe Wai Cheong, President of Black & Veatch’s Oil & Gas business. “Organizations that wait to consider investment options may lose a competitive advantage that could evaporate in a more demand-driven market.”
Other key findings include:
- More than half of respondents (51 percent) indicated that natural gas export terminals, floating LNG facilities (FLNG) and LNG import terminals coming online will decrease global LNG prices.
- U.S. federal or state regulatory commission policies to establish new funding or cost mechanisms should be implemented to facilitate development of natural gas infrastructure, as indicated by 48 percent of survey respondents.
- As natural gas assumes a stronger position in the overall power generation source portfolio, nearly half of respondents indicated they don’t know how their organization is managing the gas-to-energy connection.
- In response to growing cybersecurity risks, 50 percent of survey respondents are now creating a centralized global security operations center to control safety for all operating locations.
- Black & Veatch conducted its annual natural gas industry survey from 15 July 2016 through 5 August 2016.
- 386 participants completed the survey. Statistical significance testing reflects a precision of at least ±5.0 percent at the 95 percent confidence level.
- The full Black & Veatch report is available for download at no charge via www.bv.com/reports.
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