Raymond James & Associates Inc.’s 2Q2012 U.S. natural gas production survey confirms an “upward growth trend among publicly traded producers,” which indicated another sequential supply increase of 0.49% (0.17 Bcf/d), or 7% year/year (2.45 Bcf/d).
The survey, which was published on Tuesday, did not include the impact of shut ins, which are estimated to be about 0.22 Bcf/d for the quarter, said analysts J. Marshall Adkins and John Freeman. After taking into account the latest Energy Information Agency (EIA) 914 data for June (see related story), which indicated a decline of 0.18 Bf/d, “this compares favorably to the…growth rate of 0.3%,” the analysts said.
For more than a decade Raymond James analysts have tracked reported natural gas output from publicly traded U.S. producers that together comprise roughly half of the total domestic gas output in the country. The figures act as a “fact check” on the EIA 914 data, and Raymond James’ compilation has been a near mirror in tracking underlying supply trends.
As Adkins and Freeman pointed out, in some cases as in early 2009 they had front-run broad-based revisions and/or trend changes in EIA gas supply data. “It took long enough, but we finally saw the economic reaction to low natural gas prices beginning in October,” wrote the duo. “Since then, the market has shed 300 horizontal gas rigs, 440 total gas rigs, and continues to ‘whack them.'”
The trend, said the analysts, “has gone from ‘grow, grow, grow’ to ‘moderate, moderate, moderate.’ Considering that we’ve dropped over 440 gas rigs in less than a year, all we can say is that it’s about dang time. We’re still projecting y/y growth of 4 Bcf/d in 2012, but we’ve lowered our 2013 y/y growth outlook to just 0.5 Bcf/d, down from 2 Bcf/d previously.
“Interestingly, we’re still projecting gas production growth through 2014 and although it’s very marginal growth, we believe that is a testament to both drilling efficiencies and the impact of associated gas from the oil plays.”
However, “it could take further serious reductions in the rig count before we start to see supply rollover. In fact, we don’t see supply actually declining until 2015!” Why? The reasons, they said, are “three-fold”:
“Better rigs, pad drilling and improved completion techniques are just a few of many items that are making the oilpatch more efficient at getting resources out of the ground,” wrote Adkins and Freeman. “That being said, we don’t expect the industry to take any steps backward, nor should the market.”
Incomplete data on a few plays kept the Raymond James team from fully discussing 2Q2012 findings or the 1Q2012 findings on the Marcellus Shale. However, based on the data verified to date, “the numbers have been right on cue sans the Haynesville, which is likely attributable to higher-than-expected shut-ins from the play.”
Although they didn’t include the Marcellus in their calculations, the analysts said they were sure that growth from the region had “rivaled the 2009-2011 growth seen out of the Haynesville and expect the play to be the “King of the Gas Shales” by 2015 at the latest. “Much of the current constraints from an already rampant growth rate have been on the infrastructure side, which is reasonable given the play’s large aerial extent. However, this type of constraint is likely just a near-to-medium term issue that should be resolved by 2015 as well.”
Onshore oil production also has remained “robust,” said the analysts. According to the survey, output was up 800,000 b/d in 2Q2012. The Gulf of Mexico was a “drag on growth” during the quarter and “will be again in 3Q2012 due to the shutdowns related to Hurricane Isaac.
“Accordingly, we’ve tweaked our assumptions for the Gulf, in addition to updating our production by play estimates. We are now forecasting full-year 2012 and 2013 oil production of 6.394 million b/d (736,000 b/d of growth) and 7.246 million b/d (852,000 b/d of growth).”
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