Even with the big withdrawal by operators in U.S. onshore natural gas plays, domestic output will continue to grow “for the foreseeable future,” according to Raymond James & Associates Inc. energy team.
J. Marshall Adkins and John Freeman said in a note to clients Tuesday they have updated their bottoms-up analysis of U.S. natural gas supplies in part because of efficiency measures, and in part because of associated gas from oil wells.
“Over the past five years, forecasters have consistently underestimated how much more efficient operators become in these ‘gas manufacturing’ plays over time,” wrote the duo. “The industry is constantly learning how to do more with less. They continue to fine tune their completion techniques, which are resulting in higher initial production rates and estimated ultimate recoveries.”
Raymond James now is forecasting 2013 average production of 66.8 Bcf/d, up 1.3 Bcf/d from a previous forecast. In 2014 average gas output now is set at 67.4 Bcf/d, up 0.6 Bcf/d.
“This time last year our U.S. oil and gas production model was telling us that surging U.S. gas supply was probably going to force natural gas prices lower through 2012,” said Atkins and his colleague. “In hindsight, this surging gas supply coupled with a ‘nonwinter’ helped send pre-winter natural gas prices from over $4.00 to a low of $1.91/Mcf by mid-April.
“Now that the dry gas rig count has dropped precipitously (down 60% year/year), many energy analysts are eagerly anticipating an imminent roll-over in U.S gas supply. We guess gas supply didn’t get the memo because it continues to climb steadily higher.”
Raymond James production model now indicates that domestic gas supply won’t roll over “anytime soon and could even continue growing through the rest of this decade (especially if oil prices stay anywhere near current prices).”
The “surprising, nonconsensus” outlook, they said, mostly is driven on three factors:
“As operators shift to development drilling in places like the Marcellus Shale and certain oil and liquids plays, we should continue to see higher production rates and more and more volumes being extracted for less on a per-unit basis,” said the analysts.
A severe reduction in the dry gas rig count in the Haynesville, Fayetteville and Barnett shales has been offset by Marcellus Shale gas gains and associated gas supplies.
“In 2013 we estimate Marcellus production to increase 2.0 Bcf/d year/year, more than offsetting the 0.7 Bcf/d of production declines from the Barnett, Fayetteville and Haynesville combined.”
Because of the sharp reduction in dry gas activity, “the first- and second-year production declines, which are typically the largest, are now behind us,” the analysts noted.
“That means that if fewer and fewer dry gas wells are drilled each year, then the decline in production from those plays will become smaller and smaller (notwithstanding prior completion delays).”
If the output continues to decline on the lack of drilling, it would “make it easier for Marcellus growth and associated gas supply to more than offset those production declines from the dry gas plays,” they wrote.
“Over the next two years, we may see a dramatic shift in natural gas flows and markets due to the ever-growing Marcellus. Massive infrastructure investment has been put in place and it wouldn’t be surprising to see production top our 10.4 Bcf/d forecast by year-end 2014.”
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