Forecast for 2014
Posted: Tue Dec 31, 2013 11:50 am
From Morningstar (see: http://finance.yahoo.com/news/outlook-e ... 00093.html)
U.S. tight oil production growth continues to be the dominant supply story in energy, reshaping market fundamentals in the U.S. and abroad. Natural gas production remains stubbornly strong, with full credit due to the Marcellus. We're seeing the Majors begin to dial back capital spending, favoring projects that generate long-term production plateaus rather than more traditional oil and gas developments, where decline rates accentuate the challenge of reserve replacements.
Because much of the production growth stems from light, tight oil, we're seeing domestic production backing out imports of light oil along the Gulf Coast. A veritable glut of light oil is developing along the Gulf as more oil accumulates than refiners can process, driving the spread between domestic (WTI) and international (Brent) crude pricing wider. This is good news for domestic refiners, which benefit from low-cost feedstock. The news is less rosy for domestic producers, but so long as crude prices stay above $85 per barrel we expect robust production growth.
Producers have responded rationally to low natural gas prices, and have shifted virtually all drilling capital toward oil. Production in dry gas basins is in decline, with one key exception: the Marcellus. The combination of prolific wells and increasing pipeline takeaway capacity has resulted in surging production--we estimate exit-rate 2013 Marcellus production of around 13 billion cubic feet per day, accounting for close to 20% of total dry gas production. This, along with gas associated with oil drilling, represents a cheap source of new production, placing a lid on prices in the near term. However, we continue to believe that declining dry gas production and increasing demand will result in gas prices moving substantially higher over the next five years. In the United States, we see more commodity upside to gas than oil.
U.S. tight oil production growth continues to be the dominant supply story in energy, reshaping market fundamentals in the U.S. and abroad. Natural gas production remains stubbornly strong, with full credit due to the Marcellus. We're seeing the Majors begin to dial back capital spending, favoring projects that generate long-term production plateaus rather than more traditional oil and gas developments, where decline rates accentuate the challenge of reserve replacements.
Because much of the production growth stems from light, tight oil, we're seeing domestic production backing out imports of light oil along the Gulf Coast. A veritable glut of light oil is developing along the Gulf as more oil accumulates than refiners can process, driving the spread between domestic (WTI) and international (Brent) crude pricing wider. This is good news for domestic refiners, which benefit from low-cost feedstock. The news is less rosy for domestic producers, but so long as crude prices stay above $85 per barrel we expect robust production growth.
Producers have responded rationally to low natural gas prices, and have shifted virtually all drilling capital toward oil. Production in dry gas basins is in decline, with one key exception: the Marcellus. The combination of prolific wells and increasing pipeline takeaway capacity has resulted in surging production--we estimate exit-rate 2013 Marcellus production of around 13 billion cubic feet per day, accounting for close to 20% of total dry gas production. This, along with gas associated with oil drilling, represents a cheap source of new production, placing a lid on prices in the near term. However, we continue to believe that declining dry gas production and increasing demand will result in gas prices moving substantially higher over the next five years. In the United States, we see more commodity upside to gas than oil.