Natural Gas - Outlook turning bullish
Posted: Tue Jul 21, 2015 12:38 pm
The EIA (U.S. Energy Information Administration) released its Drilling Productivity Report on July 13, 2015. The EIA expects less natural gas production at six key shales by August compared to June. It expects production to increase only at the Utica Shale.
Aggregate natural gas production in the key shales has already waned in June over May. Aggregate natural gas production by August at the seven key shales is expected to drop 1.0% compared to production in June.
The EIA is also projecting that crude oil production by the seven key shales will drop 3.1% over the same time frame.
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Crude oil trades on a global market, but natural gas trades on regional markets. The North American natural gas market is virtually cut off from the rest of the world. Other than gas imports from Canada and a small amount of gas being exported by pipeline to Mexico, the U.S. has very little import/export capacity. Cheniere will begin exporting LNG from Louisiana by year-end.
There are a lot of natural gas reserves in the U.S. (over 100 years supply), but our production capacity is now on decline and the rate of decline will accelerate. I now believe our production capacity this coming winter will be 3 Bcf per day lower than last winter. I also believe EIA is underestimating the rate of decline. The Texas Railroad Commission reported more than a BCF per day decline for Texas in the first quarter. For this reason, I believe the price of natural gas in North America will continue to drift higher. If we get a cold start to winter, $4.00/mcf is possible by year-end. - Dan
Aggregate natural gas production in the key shales has already waned in June over May. Aggregate natural gas production by August at the seven key shales is expected to drop 1.0% compared to production in June.
The EIA is also projecting that crude oil production by the seven key shales will drop 3.1% over the same time frame.
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Crude oil trades on a global market, but natural gas trades on regional markets. The North American natural gas market is virtually cut off from the rest of the world. Other than gas imports from Canada and a small amount of gas being exported by pipeline to Mexico, the U.S. has very little import/export capacity. Cheniere will begin exporting LNG from Louisiana by year-end.
There are a lot of natural gas reserves in the U.S. (over 100 years supply), but our production capacity is now on decline and the rate of decline will accelerate. I now believe our production capacity this coming winter will be 3 Bcf per day lower than last winter. I also believe EIA is underestimating the rate of decline. The Texas Railroad Commission reported more than a BCF per day decline for Texas in the first quarter. For this reason, I believe the price of natural gas in North America will continue to drift higher. If we get a cold start to winter, $4.00/mcf is possible by year-end. - Dan