Despite weakened demand, natural gas shows strong future

Oil and gas rig counts have declined at their steepest rate since 2009. Demand for oil went off a cliff due to the Covid-19 pandemic. Gas, which has also seen weakened demand, is a different story. Pipeline capacity was overbuilt before the pandemic and the following economic contraction brought the shale boom down with it. Because 75% of natural gas production comes from the “associated gas” at oil rig sites, and crude products is expected to decline until 2021, gas rigs counts have been hit, too.

The problem in midstream gas is not whether it will recover, but when. The gas industry made headlines this week when Berkshire Hathaway announced it plans to invest heavily in pipeline and assets and related debt, regardless of recent high-profile divestments, most notably Dominion and Duke Energy’s cancellation of the costly Atlantic Coast Pipeline. Berkshire Hathaway acquired that project’s nearly $10 billion in assets last month.

The turbomachinery sector relies on this infrastructure and it remains to be seen how moves by financial power players will affect the industry. Private equity investment doesn’t necessarily signal good times ahead. Sometimes, it can act more as a scavenger, gobbling up distressed assets to chop up and sell off.

Berkshire Hathaway seems to be hedging against natural gas as utilities as the world flock to the safe haven of renewables, which have made the splashiest energy sector news in recent years.

The turbomachinery sector relies on this infrastructure and it remains to be seen how moves by financial power players will affect the industry. Will private equity investment bolster the industry? Or will it act more as a scavenger, gobbling up distressed assets to chop them up and sell off.

Natural gas growing in U.S. 

Natural gas was the fastest-growing source of electricity, according to data from the U.S. Energy Information Administration’s (EIA) Hourly Electric Grid Monitor.

Natural gas-fired generation in the lower 48 states increased by nearly 55,000 GWh, or 9%, in the first half of 2020 compared with the first half of 2019. The EIA said the increase in natural gas-fired generation was the result of recent low prices and natural gas-fired power capacity additions, despite a 5% decline in total electricity generation. The decrease in electricity consumption resulted from reduced business activity as a result of COVID-19 mitigation efforts. Natural gas-fired generation from electric power plants reached record-high levels on July 28 as summertime heat began reaching its seasonal peak.