LNG Driving Gulf Coast Infrastructure Investment, Natural Gas Production 

By Christopher Lenton  December 30, 2022 www.naturalgasintel.com

Natural gas production out of the U.S. Gulf Coast should rise over the next decade as it continues to look toward the export market, according to researchers at Louisiana State University’s (LSU) Center for Energy Studies.

In the center’s latest Gulf Coast Energy Outlook (GCEO) authors David E. Dismukes and Greg Upton said that in the Gulf Coast “both oil and natural gas production in the region are anticipated to experience a decade of growth despite the fact that oil and natural gas prices are both in backwardation.”

Gulf Coast natural gas production is seen increasing to 53 Bcf/d in 2022, up 14% year/year. Gulf Coast natural gas production could then exceed 68 Bcf/d by 2032.

This year’s figure would mean more than 50% of U.S. natural gas would be produced in the Gulf Coast. The U.S. Energy Information Administration sees U.S. natural gas production averaging 100.4 Bcf/d next year, backed by growing production in Texas’s prolific Permian Basin and the Haynesville Shale in East Texas and Western Louisiana.

The Gulf Coast region refers to the states of Texas, Louisiana, Mississippi and Alabama

Strong Demand

“This year’s GCEO, much like last year’s, anticipates that long-run energy demand growth will lead to increased U.S. energy exports, especially to the growing developing world,” the researchers said. They added that given softening inflation, and strong employment figures, “while a recession might certainly be on the horizon, this is not the GCEO base case.”

Natural gas and oil prices could still be pressured higher because of the Russia-Ukraine conflict, the report said. Meanwhile, the exodus of Western technical knowhow from Russia will dent Russia’s oilfield services sector. “Trade flows have and will likely continue to adjust by substituting Russian products away from some markets toward others.”

Overall, Gulf Coast natural gas prices “will likely remain elevated” due to LNG export pressures. “The relevant question today is whether natural gas prices have entered into a new epoch that reflects a greater integration of U.S. natural gas markets to global markets.”

When the 2 Bcf/d Freeport LNG facility was knocked offline by an explosion last June, U.S. natural gas prices immediately dropped.

LNG Driver

The liquefied natural gas market is poised to take advantage of global market conditions.

The 2023 GCEO sees as much as $175.4 billion in new energy manufacturing investment activity from 2022 through 2030 in the Gulf Coast. This represents a $15 billion, or 7.9% reduction in total regional capital investment relative to last year’s GCEO over a comparable period of time.

“While overall investment dollars are down, what differs in this outlook relative to prior years is the surge in new energy transition investments,” researchers said.

Louisiana leads the Gulf Coast region in total energy manufacturing investments, with as much as $120.9 billion planned by 2030. 

LNG investments dominate overall investment at $116 billion, most of which is earmarked for Louisiana. Non-LNG investments ($27.6 billion) are mostly associated with chemical and refinery upgrade investments and are evenly balanced between Texas and Louisiana, the researchers said.

The Gulf Coast has become the epicenter for U.S. LNG since the Lower 48’s first major export terminal started operations in Louisiana in 2016.

But aside from the much-delayed restart of Freeport in South Texas, the largest addition to export demand isn’t expected for another two years. The first train of ExxonMobil and QatarEnergy’s Golden Pass LNG southeast of Houston could start up in 2024, with the second and third trains expected to follow in 2025.

Venture Global LNG Inc. is ramping up production at the Calcasieu Pass terminal in Louisiana. Its Plaquemines LNG facility could have half of its 18 modular trains ramp up starting in 2024. The other nine trains could enter service sometime in 2025.

“Given the Gulf Coast’s position as a net exporter of energy, we are well positioned to experience economic growth through this time of turbulence,” the researchers said.

They added that supply chain constraints continue to impact energy firms and their ability to conduct work. “The current GCEO modeling assumes that supply chain constraints continue to bind for the next year or so before beginning to attenuate gradually,” they said.

Decarbonization, meanwhile, “will challenge existing Gulf Coast energy manufacturing, but it will also create an opportunity for regional leadership in the development of the production capacity for liquid fuels, chemicals, plastics, fertilizers, and other products historically derived from fossil fuels, with lower, or even net zero” greenhouse gas emissions.

The researchers added that they considered that offshore leasing had been reinstated, and that the offshore industry is returning to a “business as usual” scenario.

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