A long-view look at Appalachia’s natural gas opportunity
Moving beyond coal
In recent years, Appalachia's gas production has surged. But will the region take full advantage of this opportunity—tapping both the resource and its full value? This report examines natural gas supply and demand in Appalachia, as well as near-term actions and long-term considerations.
Appalachia’s emergence onto the global natural gas scene
In 2007, Appalachia was the world's 32nd-largest natural gas producing region, with levels comparable to Bolivia and Kazakhstan. Today it is the third largest, trailing only the full United States and Russia.
The speed and magnitude of Appalachia's emergence onto the global natural gas scene is unprecedented and due mainly to the Marcellus and Utica shale plays, which reside mostly within Pennsylvania, West Virginia, and Ohio. Recognizing the growing significance of Appalachia, Deloitte is taking a closer look at this remarkable region as part of our natural gas series. Working with colleagues from Deloitte's Center for the Long View (CLV), we explore the possible future evolution of natural gas supply and demand in Appalachia and the factors that will influence the region's future state.
The rise in Appalachia’s gas production
In recent years, Appalachia’s gas production has surpassed that of entire continents (i.e., Africa and South America), and while impressive, it is only the beginning. US shale gas production is expected to double by 2040, with much of the growth coming from Appalachia, which is estimated to have 50 years of natural gas that is recoverable for less than $3 per Mcfe. In 2017, US domestic natural gas production is expected to exceed consumption, marking the year of inflection.
Appalachia's gas production compared to global leaders
As a result, the United States as a whole faces a new world in which exports will be key to gas utilization. The market for Appalachian shale gas and its constituent elements extends beyond the United States as natural gas liquids (NGLs) are used by international petrochemical manufacturers and liquefied natural gas (LNG) can help meet global energy demand. The question addressed herein, however, is the extent to which Appalachia may seek to realize the full value of its shale gas through regional upgrading (i.e., conversion into power, heat, fuel, and other products).
 Per the US Energy Information Association, natural gas liquids include ethane, propane, butane, isobutene, pentane, and natural gasoline.
If Appalachia were a country, it would rank third in terms of production, surpassing leading natural gas producing countries such as Iran and Qatar.
Tapping the resource—and its value
Through the use of scenarios, this report explores the factors that will influence the manner in which Appalachia's natural gas opportunity evolves. While many of those factors are regional in nature (e.g., infrastructure and workforce), others are global (e.g., innovation and market). Appalachia has a generational opportunity that requires a coordinated response to maximize the economic potential locked within its shale gas.
Long-view scenarios for Appalachia's natural gas
The opportunity is so great that the region will undoubtedly benefit to some degree, whether it makes an effort to do so or not. If, however, Appalachia collectively decides to realize more of the value inherent in its shale gas and develops a cohesive and coordinated plan to do so, the economic implications are substantial—upwards of tens of billions of dollars.
The path forward
The economic impact of natural gas is particularly important to Appalachia and is helping it to move beyond coal, as the region was hard hit by recent collapses in the coal industry, as well as in the manufacturing sector.
Ultimately, the path the region takes and its eventual end state will partly depend on a few key factors:
- Social: The evolution of Appalachia's natural gas opportunity will partly depend on social acceptance of the industries that comprise the overall ecosystem.
- Technical: Opportunities exist for technological progress across the oil and gas (O&G) chain. Researchers are studying matters related to natural gas and its conversion into high-value products, which may ultimately affect how Appalachian shale gas is utilized.
- Economic: The sequencing of investment decisions is critical. Specifically, investments related to pipelines, export terminals, and other facilities that take natural gas out of the region will influence the investments aimed at utilizing the gas within the region.
- Environmental: As the region and nation rely more on shale gas to grow the economy, the potential environmental impacts of shale gas extraction, conversion, and use must be understood.
- Political: Opportunities exist for technological progress across the O&G value chain. Researchers are studying matters related to natural gas and its conversion into high-value products, which may ultimately affect the way Appalachian shale gas is utilized.
It is imperative that regional leaders look to the horizon and not trade the future for the present. A long-view perspective on Appalachia's gas production—one that anticipates the shape shifting of the global economy and strategically positions the region to capitalize on opportunities—will yield benefits for both the public and private sectors for decades to come.
Deloitte Transactions & Business Analytics, LLP
+1 412 338 7456
Deloitte Center for Energy Solutions
Deloitte Services LP
+1 713 982 3526