As low as gas prices are — and could get — they won’t be the primary cause of production shut-ins to come. Instead, as some industry executives have previously predicted, pushback from packed pipelines will force lower-pressure wells out of the gas supply mix, Barclays Capital analysts said Tuesday.

Calling the gas storage outlook for the next few months “a train wreck,” the analysts wrote that “we do not expect low prices to be the primary driver of shut-ins. Rather, infrastructure-related constraints are likely to account for the bulk of the supply reduction, causing involuntary curtailments of production — producers literally squeezed out of the market.”

During second quarter earnings conference calls some producer executives had already predicted as much. EOG Resources Inc. CEO Mark Papa earlier this month said there could be “automatic curtailments pretty much across the board” if pipeline pressures get high enough (see Daily GPI, Aug. 10).

That’s not to say prices won’t dictate shut-ins, too. By Barclays’ estimate, production costs for a group of 48 exploration and production companies, whose output accounts for about 43% of U.S. production, averaged $1.85/Mcfe last year. Of course, actual costs vary from play to play and from producer to producer, but “if cash prices fall below the variable cost of production, price-induced shut-ins could also occur,” the Barclays analysts wrote.

Even though the gas industry has added substantial amounts of storage capacity in recent years — largely in anticipation of an influx of liquefied natural gas (LNG) — unconventional production, particularly from shale plays, is set to test the outer limits of what can be stored. A Credit Suisse analyst said this week the industry has added more than 86 Bcf of capacity since the Energy Information Administration (EIA) last year pegged capacity at 4.17 Tcf (see Daily GPI, Aug. 25). EIA is expected to report in the coming days that capacity rose by 100 Bcf or more over the last year (see related story).

But whatever it is, it’s not enough for the market.

“Producers will have to reduce production in order to prevent $2.50 gas prices,” Bentek Energy LLC analyst Rocco Canonica told NGI. “We believe the forward market is significantly overvalued, so we’re telling buyers not to lock in winter baseload with the current forward strip but wait until it comes off.”

Cash prices will bear the brunt of the oversupply situation, according to Barclays. “Although we do expect further downside potential for the [futures] prompt month from the current levels, we would be surprised to see a sustained move below the $2.50/MMBtu mark,” the analysts wrote.

Weak prices and storage constraints have prompted some producers to announce production curtailments to come during the second half of the year. Newfield Exploration Co. is one, saying it would voluntarily curtail about 2.5 Bcfe of its 3Q2009 production in response to low prices (see Daily GPI, Aug. 26). “The cumulative announcements amount to about 61 Bcf for the second half of the year,” the Barclays analysts wrote. “We believe private companies are more likely to be disciplined about cutting production when prices are below costs since these companies generally try to maximize earnings an they do not face pressure from public investors to maintain production growth.”

To a great extent producers have become the victims of their own success, having unlocked unconventional resource plays only to deliver gas into a recession-addled market.

“The shale gas keeps growing,” observed Canonica. “Producers have high-graded their drilling programs, moving rigs out of conventional plays and into the shale plays. They can reduce their active rig counts but still produce the same amount or even more gas. They are going to have to slow down production in the coming months. How much they slow down will help determine the price, but weather, as you know, is the factor that can change the balance the most.”

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