Energy Prospectus

It is too late to do much for natural gas prices, but we will see one more period of winter like weather in the eastern half of the United States before Spring is really here.
See the 3/23 update at http://www.weatherbell.com/

The 5-year average storage level for natural gas at the end of the winter heating season is 1,600 Bcf. This year we are going to end winter with 2,300 to 2,400 Bcf in storage. That much gas in storage will keep a lid on natural gas prices. The next hope for better gas prices is a HOT summer that causes a spike in natural gas fired power generation. Hurricane activity in the Gulf of Mexico can also boost prices, but none of use living in the Houston area want that to happen.

On the bright side, natural gas production in the U.S. is definitely falling and demand is going up. By the beginning of next winter's heating season supply/demand will be 4-6 Bcf per day tighter. That is a big swing for the world's largest natural gas market.

In 2015 the U.S. consumed about 80 Bcf of natural gas per day and this year the U.S. should consume about 83 Bcf per day (including exports). We still import a lot of gas from Canada, but their production is also going down. By 2020. the U.S. is expected to be a net exporter (LNG and via pipeline to Mexico).

U.S. natural gas demand is expected to exceed 100 Bcf per day by 2020.

dan, your comments re this article would be appreciated---

http://www.youroilandgasnews.com/u.s.+n ... 29492.html

setliff wrote:dan, your comments re this article would be appreciated---

http://www.youroilandgasnews.com/u.s.+n ... 29492.html

I just was about to paste the same article.

Several big midstream projects came online in Q1 in the Marcellus/Utica and it was cold in February, so more gas demand in the NE quarter. Many Marcellus/Utica upstream companies had wells shut in or choked way back because there was no line capacity.

BTW they do not actually know what U.S. gas production is for any month until about three months later when the states report actuals. These are just estimates based on formulas and surveys.

U.S. production capacity is now falling about 500 MMcfpd each month. See http://www.eia.gov/petroleum/drilling/#tabs-summary-2

When demand exceed production capacity, even by a little bit, that is when the utility companies have to bid up the price to get the supply they need. We are not drilling nearly enough wells today to maintain our production capacity at current levels.

Actual production and production capacity are two different things.

Most natural gas wells are "flowing wells" that do not have any artificial lift. In fact, all of the BIG gas wells in the Marcellus/Utica are flowing wells.

Production is "controlled' by valves / chokes. 99% of flowing wells are choked back to an "ideal" flow because if you produce them wide open you risk coning, which draws more water into the wellbore and which can block off some reserves. The general rule is that if you produce at a lower rate (keeping back pressure on the well) you will get more production over the life of the well. Of course, present value rules (assuming flat pricing) makes production today more valuable than production years from now.

For a short period you can open the choke to produce at a higher rate without risk of damage. In the winter months, when demand is higher and prices are higher, some operators will open up their gas wells to take advantage of the better market. We did this at Hess each year.

"Several big midstream projects came online in Q1 in the Marcellus/Utica and it was cold in February, so more gas demand in the NE quarter. Many Marcellus/Utica upstream companies had wells shut in or choked way back because there was no line capacity."

Dan - after the fact posting of this knowledge is what makes me nuts. The reality of our NG supply situation is that there is far more than rig count and depletion that defines the situation.

Once again - predictions of decline - well - have been false - or at least completely incomplete. Please color me as angry.

Bob

Bob, if you truly believe that oil and natural gas production will not decline no matter how low our active rig count goes, then you should sell all of your energy stocks.

The fact is that all wells go on decline shortly after they are places on-line. Even Saudi Arabia has to keep drilling new wells and pumping millions of barrels of water into their oilfields to maintain production. There has never been an oil or gas field that did not go on decline.

For example, the Barnett Shale in North Texas is one of the best gas fields ever discovered. It is now on steady decline and there is no way to reverse the decline.