Insights into the US Gas Compression Industry at GCA Fall Meeting 2018

The GCA Fall Meeting 2018 highlighted key aspects of the US gas compression industry, including record gas production, the need for midstream infrastructure expansion, upcoming pipeline projects, gas consumption outlook, gas export expectations, and shale well productivity trends. Speakers from Spears & Associates shed light on the current state and future projections for the industry.

• Gas Compression
• US Gas Market
• GCA Fall Meeting
• Spears & Associates
• Shale Well Productivity

patter Follow

Uploaded on Sep 29, 2024 | 0 Views

Download Presentation

Please find below an Image/Link to download the presentation.

The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author. Download presentation by click this link. If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.

Presentation Transcript

1. Outlook for the Gas Compression Industry GCA Fall Meeting October 2018 Spears& Associates Tulsa, OK 1

2. US Gas Market US Gas Production Continues to set new records 2.5% CAGR since 2006; reached all-time highs 9 of the past 11 years 81.1 bcfd in 2018 (up 10%) due to gas plays and associated gas from oil shales 2.9% CAGR to 2023 Need to expand midstream infrastructure to handle future shale production growth Rolling takeaway capacity constraints US Gas Production (bcfd) 100 90 80 70 60 50 40 30 20 10 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2 Spears&Associates

3. US Gas Market Permian Midstream Four likely/identified gas pipeline projects Gulf Coast Express, Old Ocean Restart, Oasis Expansion, WesTex Expansion (I). Seven takeaway projects under consideration 30 processing plants currently under construction or announced. All expected to be in service by the end of 2019. Up to 10 additional processing plants needed in the Midland basin. Marcellus/Utica Shale Midstream 8 processing plants under construction or announced. All expected to be placed in service by the end of 2019. Up to 20 additional processing plants needed. Bakken Midstream 5 processing plants are under construction; all expected to be in service by the end of 2019. SCOOP/STACK Midstream 10 processing plants currently under construction or announced. All expected to be in service by the end of 2019. Up to 8 additional processing plants needed. 3 Spears&Associates

4. US Gas Market US Gas Consumption Outlook Underwhelming; projected to grow at a ~1% CAGR with growth to come from the industrial (petrochemical) sector Gas-fired power plants supplied 37% of US electricity generation this summer, an all-time high Power sector CAGR (2007-2017): -0.3% US Gas Consumption (bcfd) 85 80 75 70 65 60 55 50 2015 2016 2017 2018 2019 2020 2021 2022 2023 4 Spears&Associates

5. US Gas Market US Gas Export Outlook Expected to remain robust; US gas exports forecast to jump 33% in 2019 to 13.4 bcfd LNG exports projected to average 5.1 bcfd next year, up 70%. Minimal impact of Chinese tariff surcharge on US LNG exports Pipeline exports projected to average 8.3 bcfd in 2019, up 17% US Gas Exports by Type (bcfd) 20 18 Pipeline 16 LNG 14 12 10 8 6 4 2 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 5 Spears&Associates

6. US Gas Market Shale Well Productivity Overall US shale well initial productivity has stopped rising for gas production, following a three- year period when productivity increased at an average rate of ~50% per year IP continues to rise in the Permian Basin and Eagle Ford but this is offset by declines in other regions 6 Spears&Associates

7. US Gas Market Spot Gas Prices Long-term prices expected to average ~$2.50/mmbtu as gas supplies look to remain plentiful Zero bid pricing could temporarily emerge in the next 12-24 months where midstream capacity proves insufficient to handle rapidly-growing volumes of associated gas Spot Gas Price ($/mmbtu) $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 2015 2016 2017 2018 2019 2020 2021 2022 2023 7 Spears&Associates

8. Global Oil Market Global Oil Market Outlook Demand forecast to average 101.3 million bpd in 2019, up 1.3% Emerging markets (53% of global oil demand) economic growth and oil demand negatively impacted by the strong dollar Production outside North America to see little growth to 2023 US to supply 60%-80% of incremental global demand growth over the near- and mid-term ~8% CAGR for US oil production Global Oil Demand (million bpd) 110 105 100 95 90 85 80 75 70 65 60 2015 2016 2017 2018 2019 2020 2021 2022 2023 8 Spears&Associates

9. US Oil Market US Crude Oil Production Outlook Average of 11.4 million bpd in 2019 (up 0.8 million bpd, or 8%) The midstream sector has mobilized so quickly to address the Permian pipeline situation that the outlook has shifted from that of 2018 takeaway bottlenecks to a 2020 overbuild scenario, providing a runway for crude production growth from the Permian into the next decade US Crude Oil Production (million bpd) 16 14 12 10 8 6 4 2 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 9 Spears&Associates

10. US Oil Market Shale Well Productivity[ month 1 oil production for US shale wells] Shale well initial productivity for oil production improved steadily over the 2014 to 2016 timeframe, but has trended flat-to-lower since the start of 2017 in every major shale play Well quality has deteriorated as activity has increased, more than enough to offset gains from longer laterals and improved completion techniques As IP comes down, ever-more drilling is required to replace lost production 10 Spears&Associates

11. Global Oil Market Oil Prices Long-term outlook for WTI at $75/bbl, +/- $10/bbl Geopolitical supply concerns - Iranian sanctions/Venezuelan output collapse Brent-WTI discount to shrink as Permian takeaway constraints are eliminated Operators expected to base 2019 budgets on current futures strip ($60-$65) Spot WTI Price ($/bbl) $80 $70 $60 $50 $40 $30 $20 $10 $0 2015 2016 2017 2018 2019 2020 2021 2022 2023 11 Spears&Associates

12. Drilling Activity US Overall US rig activity forecast to increase 8% from 2018 to 2023 Expected to rise 17% this year and 3% in 2019 Drilling activity in the Permian expected to trend higher as even as completion activity slows Concerns about future access to high-spec drilling rigs US Active Rig Count 1,200 Gas 1,000 Oil 800 600 400 200 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 12 Spears&Associates

13. Drilling Activity US The number of new US wells drilled forecast to increase 10% from 2018 to 2023 Oil and gas well count projected to increase 11% in 2018 to ~20,300 and 5% in 2019 to ~21,500 US New Wells Drilled 30,000 Gas Oil 25,000 20,000 15,000 10,000 5,000 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 13 Spears&Associates

14. Completion Activity US While the Permian completion market looks challenging for the next ~12 months, signs point toward a sharp turnaround in completion activity beginning in H2 19 The keys are two-fold: the amount of new pipeline capacity coming onstream, and the size of the fracklog Permian pipeline capacity will grow from 3.5 million bpd as of mid-2018 to 4.0 million bpd as of mid-2019 and 6.0 million bpd by the start of 2020 If Permian drilling activity holds steady over the balance of this year and next and Permian completion activity declines 20% in order to match production growth with pipeline capacity, the Permian fracklog will double to ~7,000 wells at the end of 2019 We expect Permian completion activity to accelerate starting in the second half of 2019 as pipeline capacity comes onstream The next bottleneck will be frac crews/equipment 14 Spears&Associates

15. Drilling Activity International Projected to increase 4% next year to 1,220 active rigs and over 17,500 new wells drilled While project costs have come down, multi-year development timeframes remain common Investors - wary that climate change initiatives will result in stranded assets prefer short- cycle over long-cycle projects Oil companies still willing to invest in gas exploration/development International Rig Count by Region 1,600 Far East Europe Mid East South America Africa Canada 1,400 1,200 1,000 800 600 400 200 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 15 Spears&Associates

16. Commercial Trends Compressor Fleet Estimated to currently stand at ~65 million HP Forecast to grow at 3% CAGR to 2023, in line with global gas demand growth US market currently being driven by gas-lift, gathering and processing applications Global compressor packaging expenditures expected to total ~$4.0 billion in 2019, up 10%. Global Compressor Fleet (Million HP) 80 70 60 50 40 30 International 20 Canada US 10 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 16 Spears&Associates

17. Commercial Trends Contract Compression Services Rental ~20% of US fleet; ~17% of global fleet Trend toward outsourced compression in the US market Contract compression market expected to total $3.4 billion in 2019, up 7% Global Contract Compression Services ($ Bil) $4.5 $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 2015 2016 2017 2018 2019 2020 2021 2022 2023 17 Spears&Associates

18. Summary Capex discipline and cost management continue to be the key challenge for operators The goal to relentlessly drive costs out of the system Horizontal drilling/hydraulic fracturing will be the primary methods used by North American operators to manage cost and geological risk Big data will be used to drive process optimization and efficiency gains. Production operations are likely the first area impacted Optimizing resource recovery from gas shale/tight oil formations will be key over the mid- to long-term horizon The US completion market will be challenging between now and summer 2019, but the post-2019 outlook for the US upstream sector is very positive 18 Spears&Associates

19. spearsresearch.com/insider/ Weekly Podcast Weekly Analysis Video Series Free content on the Spears & Associates website 19 Spears&Associates