In Oil & Companies News 20/04/2015
This time a year ago, the United States produced about 66 Bcf/d of natural gas and the national average price of next-day delivered natural gas was $4.59/MMBtu. Today, the US is producing roughly 72 Bcf/d of natural gas and the average national price of next-day delivered gas, as of April 13, was $2.35/MMBtu. It is safe to say that we are in an environment of depressed prices and surplus supply.
So how did we get to this situation? In roughly the last 5 years, horizontal drilling and hydraulic fracturing has allowed access to previously un-economical basins, completely changing the picture US natural gas production.
In the Northeast, the Marcellus, which produced less than 2 Bcf/d in 2009, is now producing around 16.5 Bcf/d today. To put this number into perspective, Iran, a country with the second largest natural gas reserves in the world, produces roughly 16 Bcf/d. The Utica basin, underneath part of the Marcellus, began ramping up production around 2012 and is already producing almost 2 Bcf/d.
Down in Texas, the Eagle Ford, which produced less than 2 Bcf/d in 2010, is now producing 7.5 Bcf/d. These basins, along with the Permian, Haynesville, Anadarko and Niobrara, will continue to keep natural gas production at record-highs.
By now, one should realize that rig counts offer little insight on where production is headed, especially with gas. Baker Hughes rig count data showed US rigs drilling for natural gas peaked at an all-time high of 1,606 in September 2008. At that time, gas production was roughly 55 Bcf/d. The latest Baker Hughes data shows the number of rigs drilling for natural gas in the US at just 225.
The rapid growth in Marcellus production has led to extremely depressed prices in the region. Next-day gas at Tennessee Gas Pipeline, Zone 4-300 Leg has recently been trading in the low-$1.20s/MMBtu. If these discounted trading points and low national average persist, low prices could do what the oversupply on its own has been unable to do thus far: slow down production.
Despite low prices, Platts unit Bentek Energy forecasts US gas production to average 73.1 Bcf/d in 2015 with an exit rate of 74.2 Bcf/d. The US Energy Information Administration projects production to average 74.1 Bcf/d in 2015, a 3.8 Bcf/d or 5% increase from 2014. Some producers may have anticipated prices to be higher than they are today, but everyone in the market will be watching closely to see if the US can continue setting production records in this low price environment.
