Dell’Osso Says Massive Haynesville Position Gives Expand Edge in Volatile U.S. Natural Gas

By Jamison Cocklin  Published in: Daily Gas Price Index  naturalgasintel.com

Expand Energy Corp. CEO Nick Dell’Osso expects the company’s Haynesville Shale assets to play a major role in feeding robust U.S. natural gas demand as other basins remain constrained by a lack of infrastructure, he told an industry audience in New Orleans this week.

At A Glance:

• Most U.S. basins have plateaued, CEO says
• Company focusing on driving down Haynesville costs
• Expand’s LNG strategy evolving

“Everything else has plateaued other than the Permian Basin and the Haynesville,” he said. “Those two supply areas are located in states where we can build intrastate infrastructure to deliver into growing demand centers.”

It has become increasingly difficult to build pipelines across states as environmental opposition has grown, he added.

“We actually have a massive amount of natural gas in the U.S.,” Dell’Osso told a crowd at the Gulf Coast Energy Forum. “Underground, there is gas for centuries. What we don’t have is a massive amount of gas that can be delivered to clients at a reasonable cost and the primary bottleneck, as we all know, is infrastructure.”

LNG exports are expected to exceed 30 Bcf/d by the end of the decade. Meanwhile, U.S. electricity consumption this year and next is expected to surpass all-time highs, according to the Energy Information Administration. Data center growth and industrial end users are also expected to drive growth in gas-fired power generation, but estimates of exactly how much vary widely.

“These projects take billions of dollars of spend and years of planning,” Dell’Osso said. “You can see it. You know it’s happening. And we have a high degree of confidence that this demand is showing up.”

Expand operates in the Appalachian Basin, but it became the largest producer in the Haynesville last year after acquiring Southwestern Energy Co.

Expand is on track to produce more than 7 Bcfe/d across both assets this year. It’s already moving 4 Bcf/d of production to the Gulf Coast, of which nearly half is being delivered to LNG terminals.

“We’re really well positioned to serve all of the growing markets for natural gas,” Dell’Osso added. “We generate value from our size and scale.”

As baseload demand is poised to grow dramatically in the years ahead, Dell’Osso said the U.S. gas market is likely to grow more volatile.

“As much as we’re bullish natural gas, the one thing I think everyone can agree on, even the most ardent bulls, is volatility will still be a very important trend,” he said.

As a result, Dell’Osso said it is imperative that Expand continue driving down its costs in the Haynesville. He added that the lack of underground natural gas storage capacity along the Gulf Coast, where demand growth is concentrating, is also likely to strengthen volatility.

Dell’Osso said Expand has been focused on leveraging its role as both a producer and marketer to limit the impacts of volatility and offer its customers more flexibility.

The company is also taking a more methodical approach to how it capitalizes on LNG export growth.

Dell’Osso said the company is unlikely to take an equity stake in an export facility. Five U.S. LNG export projects have been sanctioned this year, with most benefiting from sizable investments from equity partners.

“We don’t know if we’ll take equity in a project. It’s not proven so far to be necessary,” Dell’Osso said. “It’s interesting to think about, but the returns have to make sense in the context of our entire portfolio. I’m not sure we’d ever need to take equity in the actual infrastructure of a facility, but we would consider it for the right terms.”

Over the last two years, the company has signed tentative agreements to supply Gunvor Group Ltd. and Vitol Inc. with up to 3 million tons/year (Mt/y) of LNG. It has so far finalized an agreement to sell Gunvor 0.5 Mt/y. It also has a binding deal to buy 0.5 Mt/y of the super-chilled fuel from the Delfin LNG project, which has not been sanctioned.

Dell’Osso has said in recent years the company was aiming to expose 15–20% of its net production to international markets. But the target has shifted given how much the company is currently producing after the Southwestern Energy acquisition.

“I don’t know that we’ll get to 15–20% just given the scale, but I would expect over several years that we’ll get to a meaningful percentage, and we haven’t given a new number around that yet,” Dell’Osso said. “We need to evolve our strategy there a bit more.”