Power generation, exports and transportation represent growing/emerging markets for domestic natural gas supplies
Black & Veatch’s Strategic Directions in the U.S. Natural Gas Industry Report shows optimism across the industry for future growth is as plentiful as domestic shale gas reserves. The report is based on a comprehensive survey of natural gas industry leaders and includes analysis from Black & Veatch industry experts.
When asked about their view of the industry’s future growth, 92 percent of respondents stated they were either “optimistic” or “very optimistic”.
“We are witnessing a rapid change in the industry,” said Greg Hopper, Managing Director of Black & Veatch’s Natural Gas and Power Generation Fuels Advisory Services. “In just a few years, we have gone from concerns about a maturing resource base and gas conservation to increasing production and new markets. What’s driving this change is the widespread belief that abundant gas resources can provide current customers with price stability, while the gas industry realizes substantial growth across a wide range of North American industries.”
Rapid change brings challenges that must be met in order for the industry to realize its growth potential. Key report findings show that:
- Natural gas demand will grow steadily through the end of the decade, and will ramp up quickly thereafter with new gas-fired electric generation. More than half (53 percent) of natural gas purchasers stated they believe their organization’s purchase or sales contract terms will stay about the same or decrease during the next five years.
- While most foresee relative price stability, the majority of industry respondents believe that gas prices will rise between now and 2020. The top-ranked drivers for future price increases are the increasing use of natural gas for power generation, increased overall demand and more stringent environmental regulations on natural gas production, respectively.
- Safety is the most important long-term industry issue across all aspects of the value chain, from production to transport, to the delivery of gas to residential and commercial users.
- Most gas buyers recognize that while gas supply is abundant, there is a wide belief that new gas pipeline capacity is critical for ongoing gas supply reliability. Nearly two-thirds of respondents (61 percent) stated the average term for firm gas transportation contracts are for three years or longer. In contrast, the majority of gas supply contracts are for less than one year, which encourages gas-on-gas competition and lower prices.
- Regulatory consistency at the federal and state levels is necessary for the industry to grow. This is particularly true for producers and pipeline organizations in states that do not have an established history of regulating natural gas production and transportation. The top-rated impact of regulatory uncertainty is an organization’s ability to recover operating costs and provide shareholders with satisfactory earnings. This is particularly true among respondents representing companies that serve the Northeast region.
“The overarching theme from our suite of industry reports is the need to invest significantly in our nation’s critical infrastructure,” said John Chevrette, President of Black & Veatch’s Management Consulting Division. “For natural gas, the most notable need is for the construction of new pipelines to transport new supplies to new markets. Regions that are heavily dependent on coal-fueled power generation today will be migrating more to natural gas-fueled generation in the future. This will require both industries to work closely together to identify pipeline needs, gain regulatory approval and fund new transportation infrastructure.”
The Strategic Directions in the U.S. Natural Gas Industry report is part of Black & Veatch’s comprehensive annual analysis of critical infrastructure industries, including the electric and water/wastewater industries. These reports, available at www.bv.com/reports, are based on industry-wide surveys and expert analysis of survey results. In 2013, Black & Veatch will include in its suite of analysis its inaugural Strategic Directions for Utility Automation and Communications report
- Black & Veatch’s natural gas report is based on an industry survey and expert analysis. The industry survey was conducted between 22 July and 6 August of this year. Survey responses are from 311 qualified industry participants. Statistical significance testing was completed and represented results have a 95 percent confidence level.
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