Gas well completions are up throughout the Lower 48, but there is still “considerable uncertainty” regarding how much supply will come from the increased drilling, according to the Energy Information Administration. Noting recent price trends and increased drilling activity, EIA found there should be an excess gas supply by the end of 2001, but caveats remain.
Gas well completion does not equal more supply, noted EIA. On the face of it, supply should be up. EIA estimated that there are about 8,500 more gas well completions and recompletions projected in 2001 compared with 1999. Through this year, Lower 48 annual well completions are expected to increase over 1999 levels by 61%, representing a “return to completion levels last seen in the early 1980s.”
However, the United States has “an exceptionally large dependence on new well completions” in the Gulf of Mexico, and without the continued increases in those well completions, supplies could suffer. EIA noted that “a sustained and successful drilling program above the 1998-99 levels in the Gulf of Mexico Outer Continental Shelf is required to maintain the area’s historical market share of production.”
Gary Long, author of EIA’s study, said that in the Lower 48, the contribution of new well completions to capacity was “roughly flat from 1996 through 1999 and then increased in 2000 and 2001.” He noted that about 30% of total wellhead productive capacity is from wells 123 months old or younger in 2000. “Similarly, about 44% of wellhead productive capacity is from wells two years old or less, and 52% is associated with wells only three years old or less.”
The new wells, however, are paying off, and will show gains by the end of this year, said Long. “This very large increase in drilling (61% from 1999 to 2001) accounts for about a 5.2 Bcf/d (about 10%) increase in effective productive capacity by December 2001,” he noted.
Effective productive capacity is key, he said. It measures the maximum production available from natural gas wells measured in Bcf/d. Long noted that the effective productive capacity declined in 1998 and 1999, increased through 2000, and this year, is projected to increase faster than production.
“All cases show a change from declining to increasing effective productive capacity beginning in 2000 and continuing through 2001,” Long noted. These changes in drilling levels will, in turn, affect both effective productive capacity and actual production in a “relatively short time.”
If all drilling were to stop completely, Long said that any surplus capacity in the Lower 48 would disappear “in a matter of months.” On the other hand, because significant drilling increases can add significant increases in effective productive capacity in a “matter of months,” those types of increases are expected in 2001.
Long based his production forecast on the U.S. production forecast in EIA’s January 2001 Short Term Energy Outlook (STEO), using an expectation of normal weather. The STEO forecast is distributed among 10 supply areas using each area’s 1999 share of production. Long compared each area’s effective productive capacity to its monthly production forecast. It found that about 879 rigs were drilled for natural gas in January 2001, and the study used this gas rig count as “constant” through the forecast period.
Long found that the Lower 48 wells were producing at rates “close to 95% of estimated effective productive capacity” in 1999. However, lower oil and gas prices in 1998 and early 1999 resulted in reduced gas rig counts and new gas well completions, which in turn caused wellhead capacity to drop.
“Higher drilling now and in the near future will increase effective productive capacity,” Long said. Using low, base and high case projections of effective productive capacity through 2001, “all indicate increasing future capacity.”
Long cautioned that because of the high drilling rates, capacity utilization is trending down this year. “If this trend continues during 2002, capacity utilization could drop below 90%, the level that indicates a `tight’ natural gas market.” He added that capacity utilization below 90% would “create the potential for lower and less volatile natural gas prices.”
Among other findings, the study reports that Texas and the Gulf of Mexico are the largest supply areas in the Lower 48, with Texas producing about 13 Bcf/d and the Gulf of Mexico producing 14 Bcf/d. “Together, they produce about half of Lower 48 production,” said EIA.
By the end of 2001, the Gulf of Mexico is projected to have surplus effective productive capacity of about 2.4 Bcf/d, or about 55% of the Lower 48 total surplus effective productive capacity. However, wells have to continue being drilled there, said the report. “Without new well completions, wellhead productive capacity would decline 40% or 10 Bcf/d in a year in the Gulf of Mexico Outer Continental Shelf. Both production and the effective productive capacity would be substantially reduced as well.”
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