The U.S. natural gas-directed rig count this year has fallen even more than in 2009, but production continues to grow, throwing into question its future trajectory “perhaps greater than ever before,” according to Barclays Capital.

Analysts Biliana Pehlivanova and Shiyang Wang reviewed this year’s domestic rig count and output in a recent report and found that a lot of things stand in the way of gas prices moving higher for the near-term.

To begin with, oil and natural gas liquids wells are “yielding a large, and increasing, amount of associated gas production,” they noted. The Energy Information Administration “puts gas production from oil wells in the Lower 48 at 8.0 Bcf/d in 2010. Associated gas output grew by 445 MMcf/d in 2009 and by 790 MMcf/d in 2010 year/year, while the oil-directed rig count averaged 275 and 588,” the analysts said.

Meanwhile, a “massive backlog of drilled-but-uncompleted wells” exists, created in part from a lack of gas pipeline infrastructure.

“The second half of this year saw 1.7 Bcf/d of pipeline capacity additions, and another 1.6 Bcf/d is scheduled to come onstream this month. In 2013, capacity additions are largest in the second half of 2013, with 1 Bcf/d approved, proposed or under construction for 3Q2013, and 2.5 Bcf/d for 4Q2013.

“The exact amount of gas the newly constructed capacity will be debottlenecking is difficult to estimate. Anecdotal evidence suggests that the Marcellus backlog of drilled-but-uncompleted wells is over 1,000. For the Eagle Ford, pipeline additions will not only help work off drilled but uncompleted inventory, but also reduce the amount of flaring, which some estimate to amount to over 1 Bcf/d.”

The issues that contributed to higher dry gas output this year will continue into next year, said the duo. The higher gas production will materialize even though Barclays analyst James West expects North American producers are likely to keep spending relatively flat (see Daily GPI, Dec. 5).

Drilling is in producers’ DNA, said Pehlivanova and Wang. “Producers, more than ever, are committed to spending within cash flow, but they were born to drill and the markets continue to reward growth of production. Every dollar of increased revenues yielded by an uptick in gas prices and a co-incident drop of costs will provide room for drilling to grow.”

Forward prices currently are “notably stronger” than the average cash prices in 2012 and where the 2013 price strip-traded for most of this year. “However, we believe prices would need to recover above the $4.00-4.50/MMBtu range in order to see a meaningful uptick in gas-directed drilling.”

Mirroring recent reports by other analysts, as well as comments by executives at big U.S. gas firms, Barclays’ team believes it’s going to be difficult to pry drillers out of the oil and liquids patches because of the higher-than-dry-gas returns. Chesapeake Energy Corp. CEO Aubrey McClendon, among others, believes this to be the case (see Daily GPI, Sept. 7).

“While not all wells were created equal and some of the best dry gas wells still offer better returns than marginal oil or liquids ones, on average oil and liquids-directed drilling is likely to attract capital before any meaningful uptick in dry gas drilling takes place,” said the Barclays analysts. “Given our price forecast for calendar 2013 to average $3.70/MMBtu, we expect gas-directed drilling to be broadly range-bound and remain below the 500 mark. This would represent a marked slowdown from 2012, as gas-directed drilling averaged 570 rigs so far this year.”

The new year’s gas production in the Lower 48 should start in a “growth mode, carried on the wings of debottlenecking and strong associated production, but tip into declines in the second half of next year. On average in 2013, we expect Lower 48 dry gas production to moderate slightly and average 64.7 Bcf/d, 0.1 Bcf/d below 2012 levels.”

©Copyright 2012Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.