Energy Prospectus

This is from Platts - 9/8/2016.

"US dry natural gas production hit a four-month high at
72.3 Bcf/d on August 27 amid a recent rebound in the price of
benchmark Henry Hub gas, Platts fundamentals and pricing data
showed. Production so far this month has declined about 0.6 Bcf/d to
a month-to-date average of 71.7 Bcf/d partly because of hurricane
impacts from Hermine."

Data like this makes me seriously question the premise of rapid depletion of shale well and a declining natural gas production scenario. I was - was - of the belief that shale NG wells had a production decrease of 50% in the first year. If production is still not falling in a meaningful way - something is seriously missing in the discussion. How so many wells can be depleting at a rate of 50% per year - and the rig count so low - what the hell is really going on in the production scenario?

Why is the NG production rate staying so high and what will change that will make it fall - when it HAS NOT.

It is not just on the production side that is tightening gas supply/demand. U.S. production is down about 2 Bcfpd and demand is up about 3 Bcfpd this year. With production still on decline and demand continuing to increase, by yearend the gap should be ~6 Bcfpd.

New wells keep being completed, even though at a slower pace. Keep in mind that shale oil wells also produce a lot of gas.

There are over a million oil & gas wells in the United States (over 450,000 just in Texas). Less than 5% were completed in the last two years. Tight formation horizontal wells do decline rapidly over the first two years. Then they settle in to a steady decline around 4% to 6%.

Go to the Range Resources 9/1/2016 presentation here: http://ir.rangeresources.com/phoenix.zh ... sentations
> Starting at slide #33 you can see decline curves for their wells in the Marcellus & Utica. Note how fast they decline in year one and then level off.
> Slide 51 shows expected demand growth for U.S. gas from 2016 to 2020.
> Slide 53 shows how much exports to Mexico have increased, much faster than forecast.
> Slide 55 shows the sharp decline in associated gas production (from wells drilled for oil).
> Slide 58 shows total U.S. natural gas production growth. Note that YOY decline began in April, 2016.

The United States is blessed to have an abundant supply of natural gas, but gas "resources" and gas "production capacity" are different. Today's gas price is not high enough to motivate upstream companies to invest in increasing production capacity to meet demand. We need gas in the $3.50 to $4.00 range to attract the necessary capital.

Good stuff on the gas supply picture at: http://www.americanoilman.com/