The accuracy of Energy Information Administration (EIA) 914 production data may be in dispute (see related story), but Barclays Capital energy analysts said last week the U.S. natural gas drilling rig count has advanced for 29 weeks, which may arrest production declines this year.
"In particular, horizontal gas drilling has recovered fully and now stands just below its peak in 2008," wrote Barclays analysts James Crandell, Biliana Pehlivanova and Michael Zenker.
Recent EIA 914 data indicate that onshore Lower 48 state marketed gas output rose by 490 MMcf/d from October to November 2009. Some of the increase in gas production likely came from a backlog of drilled but uncompleted wells, but the analysts said the newly completed wells also may push production higher into 1Q2010.
"The data tend to support the argument that productivity gains have almost completely offset the drilling cuts," wrote the analysts. "Thus while cold weather has cheered the market, as it holds the single largest potential for demand strength in the U.S., weather may be overshadowing another very important variable: the behavior of production."
Investors also are "prodding producers to grow," wrote Crandell and his colleagues. "Given the current trajectory, it is not inconceivable that the rig count could increase strongly at the beginning of the year and then pull back later in 2010 if prices disappoint."
The rig count could continue to grow and be around 1,000 gas rigs by April, which is highly conceivable, said the analysts. If that number stabilized through the first half of 2010 and then fell back to around 800 rigs by the end of the year, dry gas production in the Lower 48 states would average "just 0.7 Bcf/d lower than in 2009."
The Barclays team's current assumptions see the trajectory of drilling to grow steadily to around 900 rigs and end the year at that rate. Under that assumption, domestic output would drop by 1.75 Bcf/d year/year in 2010, but it "still results in another record storage fill by October 2010."
If the rig count outperforms the Barclays team's current assumptions, which appears "more likely than not, the implication is that even more supply is heading to market."
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