Natural gas industry report: Low prices push players to focus on internal ops
In the midst of low-price conditions that hinder capital investments in the natural gas industry, growth opportunities are still seen in emerging global markets, liquefied natural gas (LNG) projects and increased coal plant retirements.
According to Black & Veatch’s just-released 2016 Strategic Directions: Natural Gas Industry Report, optimism still remains strong in the upstream, midstream and downstream segments as organizations across the value chain adapt for future growth after a challenging two-year period for the industry.
During this time, producers are employing advanced technology solutions, targeted program management services and a greater focus on efficiency and maintenance to get as much revenue from operations as possible.
Midstream and downstream companies are also keenly focused on safety, driven by high-profile leaks and growing security concerns. Safety, including physical and cybersecurity, was identified by 70% of survey respondents as their top long-term industry issue.
In response to growing cybersecurity risks, 50% of survey respondents are now creating a centralized global security operations center to control safety for all operating locations.
John Chevrette, President of Black & Veatch management consulting, said that the sustained low market prices are forcing much of the industry to create efficiencies without sacrificing safety and reliability.
The industry report also analyzes how coal plant retirements and lower operating dispatch costs have moved natural gas to its place as the primary energy source in the US. 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.
The growth of these energy sources will likely impact utilities, and they may be required to adopt new rate models to comply with regulations that incentivize their use. As such, 81% of local distribution companies (LDCs) and utilities agreed with the greater respondent population, which listed regulatory compliance as the top industry challenge.
Upstream and midstream participants are rewriting capital investment plans as their way of coping with low prices.This includes redirecting much of their focus to internal operations enhancements, which 71% 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.
According to Hoe Wai Cheong, President of Black & Veatch’s Oil & Gas business, the best time for investors and project developers to deploy capital in the gas sector is now, when capital costs are lower. “Organizations that wait to consider investment options may lose a competitive advantage that could evaporate in a more demand-driven market,” Cheong added.
More than half of respondents (51%) also indicated that natural gas export terminals, floating LNG facilities (FLNG) and LNG import terminals coming online will further decrease global LNG prices.