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Production Cuts: Marcellus Didn't Get the Memo

Last year saw an increase in domestic gas production of 4.3 Bcf/d, or 7.5%, over 2010, marking the largest year-over-year production jump in the last 25 years, according to Bentek Energy LLC.

However, in the last six months, production growth has stalled or declined everywhere except in the mighty Marcellus Shale as producers scale back dry gas activity due to low prices.

The jump in production last year was on both a volumetric and percentage basis, Bentek said in a Market Alert.

"As of February 2012, growth in total natural gas production has stalled," the firm said. "Production has flattened or is down in every region of the U.S. but one: the Northeast. Over the last several months, continued growth in the Marcellus is the only thing keeping total U.S. gas production from dropping. Lower volumes of dry gas production have been offset by increasing volumes of wet and associated gas, effectively shifting the geography of production growth."

Given the bounty of gas in the United States, imports from Canada are down. Last year saw a decline of 0.8 Bcf/d, and imports from Canada are down by almost 40% so far this year, Bentek found. Meanwhile, evolving infrastructure developments are poised to position the northeastern United States as a gas exporter to Canada (see related story).

And domestically the ongoing trend of Rockies gas moving to the West instead of eastward continues, Bentek noted, as supplies favor westbound Ruby Pipeline over eastbound Rockies Express Pipeline.

"As the market looks forward to the spring and summer, the big question is whether production will decline enough -- and demand increase enough -- to balance the market before storage inventories reach maximum capacity, possibly sometime in late summer," Bentek said. "At this point it is impossible to make a prediction about that scenario one way or the other."

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