Toby Rice Sounds Off at CERAWeek on Better Market for Gas Than LNG, by Jim Willis
We’ve called Toby Rice the “apostle of LNG,” spreading the LNG gospel far and wide in an effort to expand U.S. LNG exports (see EQT CEO Toby Rice Unveils Nationwide Plan to “Unleash” U.S. LNG).
Toby Rice Sounds Off at CERAWeek on Better Market for Gas Than LNG
CNG/LNG | ELECTRICAL GENERATION | ENERGY COMPANIES | EQT CORP | EXPORTING | INDUSTRYWIDE ISSUES | PIPELINES
March 20, 2024
The annual CERAWeek by S&P Global conference is happening now in Houston. Everybody who’s anybody is there. (Yes, we’re nobodies; we’re not there!) Oil and gas CEOs, politicians, regulatory agencies — they all convene in Houston to talk about energy at what is billed as “the world’s premier energy conference.” Toby Rice, CEO of EQT Corporation (the largest natural gas producer in the U.S.), was there yesterday. He had some VERY interesting things to say during a panel discussion and on the sidelines. Rice touted the need for more pipeline infrastructure, predicting wild swings in the price of natural gas absent new pipelines. He also said there’s an even bigger market than LNG for U.S. natural gas. What could it be?
We’ve called Toby Rice the “apostle of LNG,” spreading the LNG gospel far and wide in an effort to expand U.S. LNG exports (see EQT CEO Toby Rice Unveils Nationwide Plan to “Unleash” U.S. LNG). He’s even formed a partnership with Williams and TC Energy called Partnership to Address Global Emissions (PAGE) to advocate for policies that encourage the development of the infrastructure (pipelines) needed to increase the production and exporting of U.S. LNG to replace foreign coal and lower greenhouse gas (GHG) emissions (see EQT, TC Energy, Williams Launch Partnership to Promote LNG Exports). Toby Rice is “all in” on LNG.
So when we read his comments that there’s an even BETTER, more reliable market for U.S. natural gas than LNG exports, we were floored. But when we read what that market is, we thought, “It makes perfect sense.” That “other” market? Natural gas-fired electricity.
Of course Rice is still pushing LNG, too.
S&P Global Commodity Insights has the news from CERAWeek about some of Rice’s interesting comments from yesterday:
HIGHLIGHTS
Less volatility seen in data center power demand
EQT taking ‘portfolio approach’ on LNG
Rising electric power demand associated with the proliferation of artificial intelligence provides a more promising trajectory for US natural gas production growth than even rising LNG export demand, which is expected to be a comparatively more volatile market, EQT CEO Toby Rice said in an interview.
“While Gulf Coast has LNG as a hot emerging market, guess what Appalachia has: We’ve got AI. We’ve got ‘data center valley’ right next door, and now we have the pipeline that services that: MVP,” Rice said March 18 on the sidelines of CERAWeek by S&P Global energy conference in Houston, referring to the Mountain Valley Pipeline.
Both LNG and AI data centers are exciting emerging markets but the baseload-nature of data centers make them more attractive because there will be “less volatility with these data centers.”
“They’re not going to turn on and off,” Rice said.
AI and power demand
Data centers and the electricity needed to run them have become an increasingly salient subject of interest and conversation among industry players.
US data center power demand is expected to increase by around 30% from 23 GW in 2023 to over 30 GW by 2030, according to a report published in November 2023 by S&P Global analysts.
Large tech companies including Amazon and Google have generally tethered their data center expansions to the use of emissions-free power. Amazon Web Services, for example, recently bought a 960-MW nuclear-powered data center campus in northeastern Pennsylvania.
Rice emphasized that Amazon went with nuclear because it needs firm power and said the breadth of data center demand growth will invariably result in gas-fired power demand growth.
“This catalyst isn’t going to be moving at the pace of governments allowing LNG contracts happen,” Rice said. “This is tech, and this is going to be feeding tech demand as power is going to be needed. Buckle up, because this could be very fast, and there’s only one energy source that has proven to keep up with massive scale and speed.”
For a number of upstream and midstream operators, the expanding data center market is only reinforcing what was already a generally bullish take on the gas macro outlook, which has a foundation in the variability of renewable generating sources and the associated need for dispatchable generation.
S&P Global gas market analysts project that Lower 48 US states’ gas-fired power demand peaked in 2023 at 35.2 Bcf/d, an estimate that assumes normal weather conditions.
In their most recent North American Natural Gas Short-Term Outlook, the analysts estimate that power sector gas demand will fall to 28.7 Bcf/d by 2028, although the report includes a caveat that gas demand in the power sector “could remain stronger if renewables adoption stalls.”
Upstream operators, includingEQT, have latched on to past assessments of peak gas-fired power demand that ultimately proved to be wrong as they project confidence that demand will grow.
“It’s been ‘peaking’ every year for the last five years,” Rice said.
Rice on LNG, MVP
LNG is generally treated as the predominant growth market for US gas over the next decade. Feedgas demand is expected to rise from 13 Bcf/d in 2023 to nearly 25 Bcf/d by 2028, according to S&P Global forecasts.
EQT has entered into LNG tolling agreements with Commonwealth LNG, Lake Charles LNG and most recently Texas LNG, which provide that the producer pays a toll to push its gas through the liquefaction facility before taking it to global buyers.
The company’s tolling agreements represent about 5% of its volumes. Entering agreements to have 10% of volumes exposed to international pricing “could make sense,” Rice said.
“We will take a portfolio approach. I think initially getting into this market, we’re going to be a little bit more risk averse so [we] have a little bit more better controls on the pricing we receive,” Rice said. “But yeah, in the future, I think you could see us take a little bit more exposure.”
EQT on March 11 announced a deal to acquire midstream operator Equitrans, which includes a roughly 49% stake in the 2 Bcf/d Mountain Valley Pipeline. EQT already holds 75% of the pipeline’s capacity. In a conference call that day, company executives stressed that Equitrans’ gathering assets provide the most value to EQT, estimating that the acquisition is expected to push breakeven costs to $2/MMBtu.
MVP, which has an expected in-service date of Q2 2024, was identified as a candidate high on the list for divestment.
“We can still … receive the strategic benefits of owning that pipeline by having the capacity,” Rice said. Having most of MVP’s transportation capacity gives it access to expansions that could come further downstream, he added.
“The other part is [MVP is] a super low-risk asset,” he said. “There’s investors out there that will pay pretty healthy premiums for that type of asset.” (1)
Bloomberg focused on Rice’s comments about needing more pipeline infrastructure. Rice indicated without more pipelines, the price of natural gas in coming years will fluctuate wildly:
Toby Rice says prices could eventually swing as high as $8
‘This is the world we live in unless we get serious,’ he said
The chief of the largest US producer of natural gas has warned that a lack of pipelines and storage facilities will trigger dramatic price swings in the years ahead, causing them to surge as much 350%.
Gas demand in the US has jumped 50% since 2010, while pipeline and storage capacity have increased just 25% and 10% respectively, EQT Corp. Chief Executive Officer Toby Rice said during an interview at the CERAWeek by S&P Global energy conference in Houston. That leaves the market prone to wild price swings, ranging from today’s level of about $1.75 per million British thermal units to as high as $8, Rice said.
“This is the world we live in unless we get serious about getting more infrastructure built,” said Rice, whose company last week agreed to buy Mountain Valley Pipeline developer Equitrans Midstream Corp.
Rice is a long-standing and vocal critic of the US regulatory framework and permitting process that he says holds up the construction of new pipeline infrastructure. In November, he warned that a pipeline crunch threatened to trigger an energy crisis. Rice also said in December that falling prices will lead to a slowdown in drilling, and that prices were well below the break even cost of production.
US gas prices have undergone a dramatic collapse this year, plummeting to the lowest in four years and prompting several producers including EQT to slash production.
Read More: Gas Prices Jump as Top US Driller Slashes Output to Fight Glut
Another factor threatening to send prices swinging in the other direction is the dozens of coal plants that have closed in the US in recent years. Coal plants have traditionally helped keep gas prices in check because when it gets too expensive, electricity generators turn to coal for more of their power.
“That’s no longer an effective lid on prices,” Rice said. “So you can see prices run through that and unfortunately start seeing industrial demand destruction driving price. That’s sort of the dynamic you saw in 2022 and would leave you with prices close to $8.” (2)
(1) S&P Global Commodity Insights (Mar 19, 2024) – CERAWEEK: AI-powered gas demand growth more promising than LNG, says EQT’s Rice
(2) Bloomberg/Joe Ryan (Mar 19, 2024) – EQT CEO Warns Lack of Gas Storage Will Trigger Price Gyrations