SAN ANTONIO—Midstream players were urged to maintain a tight grip on costs amid low natural gas prices by speakers at Hart Energy’s recent Midstream Texas conference.

The midstream sector should maintain “vigilance in driving down costs” as it expands demand-driven natural gas infrastructure needs, attendees heard from John Poarch, vice president, commercial & business development, Williams Cos.

And midstream players and equipment suppliers “need to find ways to significantly reduce the cost of pipelines and processing facilities to remain competitive in today’s low cost price environment,” said Carlos Conerly, vice president, ISII Plant Services.

Conerly, for instance, pointed to the need for the midstream sector to follow upstream companies’ example of having reduced days-to-drill a well by as much as 61%. He cited data showing how wells in northeast Appalachia are being drilled in 10 days, down from over 25 days earlier.

Conerly identified the industrial and electric power segments as growth markets for natural gas.

After declining to a low of 6.2 trillion cubic feet per year (Tcf/year) in 2009, due to the 2008 recession and manufacturing moving overseas, industrial segment demand grew to 7.5 tcf/year from 7.0 Tcf/year over 2011-2015, an increase of 7%. The Energy Information Agency (EIA) is projecting 28% growth in industrial demand to 9.6 Tcf/year by 2040, he noted.

Demand for natural gas in the electric power segment has increased at the expense of coal, said Conerly, with June 2016 marking the first time that electricity generated by natural gas has exceeded that of coal. While power generation using renewables (wind, solar) is on the rise, these facilities are dependent on existing natural gas generation to meet grid demands, he added.

Another area of demand growth will come from international markets, including gas piped to Mexico and overseas LNG markets.

Exports to Mexico reached an all-time high in August at 3.7 billion cubic feet per day (Bcf/d), according to Conerly. A “massive” pipeline buildout is underway, with 7.8 Bcf/d of new border capacity due to be constructed during 2016-2019. Export terminals providing for up to 10 Bcf/d of LNG exports from the U.S. have been approved by FERC and are under construction, he added.

In terms of lowering costs to competitive levels, Williams’ Poarch noted steel costs were off about 40% from the highs of 2015, while day rates for ultra-deepwater rigs had also fallen by 40%. Still, supply chain organizations must continue to drive costs lower, he said, and staffs must be sized to handle a “lower-for-longer” price environment.

Poarch similarly recognized the electric power as the leader in natural gas demand growth, calling it a “shining star.” Year-to-date, electric power demand is running some 2.2 Bcf/d over a year ago, he noted, as compared to a 3.45 Bcf/d drop in year-to-date residential/commercial demand due in large part to the unusually mild winter last year.

In terms of demand forecasts, Poarch cited Wood Mackenzie data showing demand for natural gas growing by a little over 30 Bcf/d from 2015 to 2025. The Northeast is expected to be the leader in terms of production growth, meeting roughly 80% of demand growth over that period. The top three demand drivers are forecast to be LNG exports, at 12.7 Bcf/d; industrial, at 6.2 Bcf/d; and power, at 4 Bcf/d.

Poarch called for an improvement in the political climate, saying that the “greatest headwind” facing a need for additional infrastructure was “sentiment against hydrocarbon fuels of any kind.” The industry must educate the public on natural gas having “a lower carbon footprint than all other hydrocarbon fuels,” and pipelines being “far safer and environmentally friendly that other forms of transportation.”

Providing a perspective on export markets for U.S. natural gas, Tokyo Gas Ltd.’s general manager of upstream business development, Nozo Nagai, forecast that by 2025 half of exported U.S. gas—7 Bcf/d—will be in the form of LNG, while the other half will go by pipeline to Mexico and Canada. Nagai noted that Japan is the world’s largest importer of LNG, currently importing 12 Bcf/d.

Nagai cited data from Poten & Partners indicating that, by 2030, around 25% of global LNG trade is forecast to be comprised of “homeless LNG,” that is, LNG not tied to short or long-term contracts. Up from about 18% last year, this supply will provide the LNG market with more liquidity, but compete with new projects and tend to put downward pressure on LNG prices.

Tokyo Gas currently imports about 2 Bcf/d of LNG. The company has long-term LNG contracts covering 11 projects in five countries, including two in the U.S. (Cove Point LNG and Cameron LNG). It operates a vertically integrated supply chain from the wellhead to the end user. Procurement and transportation assets include 14 LNG vessels and four LNG regasification terminals.

Nagai noted that if oil prices stay low, then oil-indexed LNG supply will also maintain low prices and be more competitive. To boost LNG exports and keep U.S. supply competitive, it is important to maintain a low cost basis, of which gathering, processing and transportation are key components, he observed.

In terms of upstream natural gas investments, typical investment size for Tokyo Gas is $30 million to $300 million, covering proved developed producing and proved undeveloped properties. The properties are designed to provide a “natural hedge” against Henry Hub-linked LNG. Tokyo Gas is also interested in midstream, especially gathering and processing that is tied into the upstream assets and increases profitability, according to Nagai.

Chris Sheehan can be reached at csheehan@hartenergy.com.