U.S. Dry Natural Gas Production Growth Levels off Following Decline in Natural Gas Prices

U.S. dry natural gas production has increased since late 2005 due mainly to rapid growth in production from shale gas resources. However, there have been two notable instances (see red ovals in the chart) in the last seven years when natural gas production leveled off during a period of falling spot natural gas prices. The first was during the recent economic recession and the latest began in the fourth quarter of 2011 and continued through the first quarter of 2012.



Weather events (see green ovals) have also affected U.S. natural gas production.
The major events over the past seven years that have caused dry gas output to level off or even decline include:

Hurricanes Katrina and Rita (Sep-Oct 2005) - Disrupted up to 12.2 billion cubic feet per day (Bcf/d) in offshore natural gas production.

Hurricanes Gustav and Ike (Sep 2008) - Disrupted up to 9.5 Bcf/d in offshore natural gas production.

Economic recession and falling prices (Oct 2008- Sep 2009), Reduced industrial and manufacturing activity, and lower electricity use eased demand for natural gas as a feedstock and a power generation fuel. Natural gas prices fell sharply as a result.

Winter well freeze offs (Feb 2011) - Disrupted up to 7.5 Bcf/d in natural gas production from Texas to Arizona, when water froze inside wellheads during extremely cold weather and blocked gas flows.

Supply overhang and falling natural gas prices (Oct 2011-Mar 2012) A warm winter that reduced heating fuel demand and record high gas inventories resulted in a nearly 50% drop in gas prices, causing some energy companies to postpone new drilling and cut back on some existing operations.

Natural gas production was relatively flat between October 2011 and March 2012, when Henry Hub spot gas prices declined from just above $3.50 to around $2.00 per million British thermal units in March. Preliminary EIA data indicate a slight drop in production during March, according to the Natural Gas Monthly report released on May 31.

Of the five large gas producing states tracked monthly by EIA Texas, Louisiana, New Mexico, Oklahoma, and Wyoming, New Mexico had the highest percentage decline in its March gross natural gas production, down 2.2 percent from the previous month, while Texas had the largest volumetric drop, down 150 million cubic feet per day. States that EIA does not presently track on a monthly basis, such as Pennsylvania, may have seen their gas output increase during March.

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Phil Flynn: Gulf Coast Surprise

What fun is an oil inventory report without a little surprise now and then. The Gulf Coast, famous for its beautiful beaches, its spicy cuisine, and let's not forget to mention its oil refineries and oil import terminals, gave the weekly EIA data a Louisiana kick. A surge in Gulf Coast oil imports caused a large, whopping jump in U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) of 4.7 million barrels from the previous week. That puts supply at 337.6 million barrels and keeps it in the upper limit of the average range for this time of year. Thanks to that Gulf Coast surge!

But let's go even further south, down to Brazil! Blame it on Rio! Well not yet anyway but in the future Brazil is going to be a major oil player. The EIA said that, "Brazil will be responsible for some of the world's largest increases in oil production in the coming decades. Advances in seismic imaging have enabled the discovery of offshore "pre salt" deposits of oil in Brazil's Campos and Santos Basins.

These pre salt fields, so-called because they lie under massive layers of salt, are located 18,000 feet below the ocean floor under more than 6,000 feet of salt. Brazil already produces 2.1 million barrels per day (bbl/d) of crude oil and lease condensate, yet just became a net exporter in 2008. Pre salt development, coupled with the ability to meet a large share of domestic demand with Biofuels, is projected to transform the country into a major oil exporter."

You might also blame Rio for the drop in distillates. The EIA say's distillate fuel inventories decreased by 4.3 million barrels last week and are in the middle limit of the average range for this time of year. The drop comes as demand surges for diesel as harvest is underway.

Yet demand for gasoline continues to be poor. The EIA says motor gasoline inventories decreased by 1.4 million barrels last week and are near the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week.

What will be the surprise for today? My guess is a bigger than expected injection on gas storage! Report today!

Sign up for a trial of Phil's daily trade levels! Just email him at pflynn@pfgbest.com

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Natural Gas Prices Too Low to Sustain Production

For U.S. energy producers, high priced $11 natural gas is "kind of like a Saturday night drunk," Devon Energy Executive Chairman Larry Nichols said at the opening session of the Unconventional Gas International Conference and Exhibition on Tuesday afternoon. "It may feel good at the time," he said, but it isn't a sustainable high.

Just as an $11 price is too high to persist, today's current market prices of about $3.75 are too low for the industry to thrive and maintain strong natural gas production in the long term, said Nichols, who stepped down this year from his longtime position as CEO of Oklahoma City based Devon, the leading producer in North Texas' gas rich Barnett Shale.

Even in the face of low gas prices, domestic energy producers have continued to do substantial drilling, particularly in major unconventional gas plays such as the Barnett, the Eagle Ford Shale in South and Central Texas, the Haynesville Shale in Louisiana and East Texas, and the Marcellus Shale in the Appalachian region. By continuing to drill despite weak prices.....Read the entire article.


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