Top
Reference

US natural gas supply

Summary

26 Oct 2014.

Experienced US exploration and development companies are still reducing natural gas production in favor of liquids. And the natural gas in storage is at a 12-year low. Nothing is certain, but the price is likely to continue its two-year uptrend.

Graphs

26 Oct 2014. Data through May 2014.

The graph shows the 12-month average of gas in storage divided by the 12-month average of gas consumption; i.e. this is a smoothed measure of inventory in terms of months of supply.

Highlights

Beginning of the shale boom (3 Apr 2011) See 11 Jun 2008 clipping for a graph of US production 1998-2008. Production was more or less level until early 2007, when it began to rise noticeably.

Forced drilling may ease in 2011 (3 Apr 2011) Many companies that acquired properties in the early stages of the shale gas boom were forced to drill, even at uneconomical prices, in order to keep their leases. Probably the pace of such forced drilling will decline in 2011.

Fraction unconventional (3 Apr 2011) As of mid 2009, unconventional (including coalbed methane, tight gas, and shale gas) provided about half of US production.

Imports (3 Apr 2011) Some producers, such as Qatar, can produce gas so cheaply that selling even at $4 in the US is profitable. In addition, the pipeline network is limited and not all suppliers can be connected with all customers. So even with the glut, imports have not dropped drastically. See graph in 28 Mar 2011 clipping.

Sources

The main source for US data is the Energy Information Administration of the Department of Energy.

See also the BP Statistical Review of World Energy.

See also

Clippings below were used in the construction of this page

EIA chronicles the beginning of the shale boom

11 Jun 2008. EIA website, under Natural Gas.

http://tonto.eia.doe.gov/energy_in_brief/natural_gas_production.cfm (not a permalink)

“Is US natural gas production increasing?”

“Natural gas production in the Lower 48 States has seen a large upward shift. After 9 years of no net growth through 2006, an upward trend began that generated 3% growth between first-quarter 2006 and first-quarter 2007, followed by an exceptionally large 9% increase between first-quarter 2007 and first-quarter 2008. … more than half of the increase in natural gas production between the first quarter of 2007 and the first quarter of 2008 came from Texas, where supplies grew by an exceptionally high 15%. … Improved technology, developed over many years, now allows economic production of resources in deep water and large “unconventional” resources, which are difficult to produce. High and increasing natural gas prices have spurred more natural gas drilling and the trend to move from drilling simpler vertical wells to horizontal wells. One indicator of the transition from conventional to unconventional production is the number of rigs drilling “horizontal wells.” In the late 1990s, about 40 drilling rigs, or 6%, were drilling horizontally. As of May 2008, the number of rigs drilling horizontal wells has grown to 519 rigs, or 28% of the total. … Texas accounts for one third of the nation’s natural gas production. Spearheading Texas’ recent rapid growth has been horizontal drilling in a geologic formation known as the Barnett Shale. … Recent drilling trends indicate continued growth, with a stronger concentration on unconventional resources like shales. … Already, the production from just one Barnett Shale field in Texas contributes more than 6% of production from the lower 48 States”

nat-gas-production.jpg

Unconventional is already up to about half of US production

21 Sep 2009. Advanced Resources presentation slides.

http://www.adv-res.com/pdf/Kuuskraa%20EFI%20Natural%20Gas%20SEP_21_09.pdf

“Paradigm Shift in Domestic Natural Gas Resources, Supplies and Costs. Vello Kuuskraa, President ADVANCED RESOURCES INTERNATIONAL, INC.”

Graph shows unconventional gas (including coalbed methane, tight gas, and shale gas) production rising from about 16 Bcf/d in 2000 to about 31 Bcf/d in mid 2009. This compares to mid-2009 total gas consumption of about 62 Bcf/d.

US LNG imports growing and adding to glut

30 Nov 2009. Bloomberg.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aiUK2YSomg7s&pos=14

“Natural Gas Glut Overwhelms Speculators, Defies Rally (Update2). By Ayesha Daya”

“U.S. imports of liquefied natural gas will rise 34 percent this year to about 470 billion cubic feet and another 40 percent in 2010, the Energy Department forecast on Nov. 10. Global LNG supply will exceed demand for a second year in 2010 as new projects from Qatar to Peru boost output, Sanford C. Bernstein & Co. said in a Nov. 23 report. …

New production in Qatar, which has the world’s third- largest gas reserves, is a legacy of decisions made years ago. As gas tripled between 2002 and 2008 and Qatar increased investments, the nation avoided locking in prices for about half of its new LNG in anticipation of further gains, according to consultant Wood Mackenzie Ltd. Instead, the global recession caused prices to collapse 25 percent last year.

“Qatar has had to supply the U.S., even though the returns are absolutely awful, because it is the sink for cargoes that can’t go anywhere else,” said Tony Regan, a consultant with Singapore-based Tri-Zen International Ltd. and a former executive in Royal Dutch Shell Plc’s LNG business. …

As the world’s most efficient producer, Qatar can profit at lower prices. The nation can pump 1 million Btu for as little as 15 cents, compared with about $4 for Russia and Norway, according to the IEA. Most costs are covered by so-called condensate, an oil-like petroleum that’s pumped along with natural gas and refined as if it were crude. Qatar then spends another $2.83 to liquefy that gas ready for shipping.

The country plans to increase annual LNG production capacity 43 percent to 77 million tons by the end of 2010.”

Forced drilling to slow in 2011

16 Aug 2010. Investopedia.

http://stocks.investopedia.com/stock-analysis/2010/Drilling-Frenzy-To-Hold-Acreage-May-Slow-In-2011-CHK-HK-XCO-NFX0816.aspx

“Drilling Frenzy To Hold Acreage May Slow In 2011. Eric Fox”

“Chesapeake Energy (NYSE: CHK) said during its second quarter conference call that most of its acreage in the Haynesville Shale would be held by production by the middle to late part of 2011. The company indicated that after that time, it might start ramping down development in the Haynesville Shale if natural gas fundamentals remain weak. Chesapeake Energy has already cut its rig count in the Fayetteville Shale in half, as the company appears to be further along in holding acreage in that play.

EXCO Resources (NYSE:XCO) reported that by the end of 2011, the company's “key acreage” in the Haynesville Shale will be held by production. Petrohawk Energy, (NYSE: HK) another large player in the Haynesville Shale, indicated that most of its acreage will be held by production by the middle of 2011.

Some Have Already Convert To Held-By-Production Status

Some companies have already converted most of their acreage in some basins to held-by-production status. Newfield Exploration (NYSE: NFX) has 172,000 net acres in the Woodford Shale, and it has approximately 90% of that acreage held by production. The company has already cut its rig count in the Woodford Shale from nine rigs at the start of 2010 to four currently, and it estimates keeping production flat here with four rigs.

The fast development pace in the United States has led to rising costs and shortages for hydraulic fracturing and other oil services. This pressure will also ease once the involuntary drilling to hold acreage slows down.

A More Rational Drilling Approach Is On The Horizon

The development frenzy to hold acreage by the exploration and production industry is partially responsible for the weak fundamentals in the natural gas market. Once this passes, a more rational approach to development, based on the relative rate of return between competing basins, may improve the fundamentals for natural gas.”

DOE EIA Annual Review 2009

19 Aug 2010. DOE EIA website.

http://www.eia.gov/emeu/aer/

“Annual Energy Review”

Nice overview of the flows:

More drilling for the same gas:

Putting the current high storage numbers in perspective:

Companies become reluctant to drill for gas at $4

24 Sep 2010. Reuters.

http://www.reuters.com/article/idUSTRE68N2AB20100924

“Analysis: Gas capex cuts coming for U.S. companies. Anna Driver”

“Williams (WMB.N), a natural gas production and pipeline company, has said it will cut spending in 2011, citing low prices and lower margins for natural gas liquids like butane.

More companies are expected to follow after third-quarter results are released next month and 2010 winds down.

“I have to think that low gas prices are going to limit budgets,” Phil Weiss, an oil analyst at Argus Research, said. “I expect spending to go down.”

Other companies that may slow natural gas drilling next year include Devon Energy Corp (DVN.N), Noble Energy Inc (NBL.N) and Apache Corp (APA.N), Argus's Weiss said.

Drilling for shale gas in areas like the Haynesville Shale in Louisiana where the gas is “dry” or has a low liquids content has fallen out of vogue as natural gas prices hover around $4 per million British thermal units.

“Our Haynesville program in 2010 is over,” James Dearlove, chief executive of Penn Virginia Corp (PVA.N), told an investor conference in New York last week. “Drilling dry gas in a $4.50 environment maybe isn't the best thing to do with your money.”

Unprocessed natural gas out of the ground often contains liquid hydrocarbons that are not crude oil and can be processed and sold separately for a premium. Low gas prices have prompted a number of companies including Chesapeake Energy (CHK.N) and EOG Resources Inc (EOG.N) to ramp up drilling on acreage containing oil or gas that is “liquids rich.””

LNG exports could, in several years, reduce gas oversupply

8 Oct 2010. FT.com.

http://www.ft.com/cms/s/0/6be97200-d22f-11df-8fbe-00144feabdc0.html

“US to take on rivals in natural gas. By Sheila McNulty”

““Having just completed a massive build-out of re-gasification capacity, North America is gearing up to export gas to the rest of the world,” James Crandell, natural gas analyst at Barclays Capital in New York, says. …

The glut in the US has depressed domestic prices to less than $4 per million British thermal units, down 70 per cent from a peak of more than $13.5 per mBtu in mid 2008.

But on the LNG spot market in Asia, which is served by countries such as Qatar, prices are much higher, at about $10 per mBtu.

Mr Tsafos [Nikos Tsafos, manager of upstream and gas for PFC Energy, the consultancy] says large-scale exports could help lift prices in the US and damp them internationally. …

The James A Baker III Institute for Public Policy in Houston says the impact of the US shale boom is already being felt globally by the drop in US imports which, only a few years ago, were expected to rise sharply.

The US has 10 LNG import terminals and two under construction, yet the boom in gas from shale rock means the import plants are all but redundant.

“US import terminals for LNG sit virtually empty and the prospect of the US becoming even more dependent on foreign imports has receded, with terminal owners now petitioning the US government for export licences,” the institute says in a report. …

Cheniere hopes to begin exporting by 2015, the year Apache and EOG Resources, two US gas producers, hope to begin exporting gas from another North American shale field, in Canada, through their Kitimat project. …

“The economics are the key,” says Frank Harris, head of Global LNG for Wood Mackenzie, explaining that even at current US domestic prices it is uneconomic to ship the gas to the Northwestern European market. But he adds: “In southern Europe or Asia, you could possibly make it work.””

Cheasapeake moving almost entirely to liquids

4 Nov 2010. Rigzone.

http://www.rigzone.com/news/article.asp?a_id=100950

“Chesapeake Aims to Be Top 5 US Liquids Producer by 2015. by Angel Gonzalez”

“Chesapeake aims to become a “top five” U.S. producer of oil and natural gas liquids by 2015, Chief Executive Aubrey McClendon said Thursday.

In an earnings conference call with analysts, McClendon said that the Oklahoma City company aimed to produce about 150,000 barrels a day of liquids by year-end 2012, and 250,000 barrels a day of liquids by 2015.

The company plans to shift its capital spending from 90% that was dedicated to natural gas in 2009 to 35% dedicated to natural gas in 2012, McClendon said. But the company is open to revising its strategy if natural gas prices come back to higher levels.

Natural gas producers like Chesapeake, which helped create an oversupply of natural gas in the U.S. by exploiting tight rock formations called shales, are now turning to more profitable oil production as natural gas prices stagnate.”

Definition of "marketed production"

Undated; copied 3 Apr 2011. US Census Bureau page on natural gas.

http://www.allcountries.org/uscensus/1181_natural_gas_supply_consumption_reserves_and.html

“Natural Gas–Supply, Consumption, Reserves, and Marketed Production”

“Natural Gas Marketed Production: Gross withdrawals of natural gas from production reservoirs, less gas used for reservoir repressuring; nonhydrocarbon gases removed in treating and processing operations; and quantities vented and flared.”

More deep pockets to pay for loss-making wells

8 Jan 2011. Bloomberg.

http://www.bloomberg.com/news/2012-01-09/shale-bubble-inflates-on-near-record-prices-for-untested-fields.html

“Shale Bubble Inflates on Near-Record Prices. Joe Carroll and Jim Polson”

“Surging prices for oil and gas shales, in at least one case rising 10-fold in five weeks, are raising concern of a bubble as valuations of drilling acreage approach the peak set before the collapse of Lehman Brothers Holdings Inc.

Chinese, French and Japanese energy explorers committed more than $8 billion in the past two weeks to shale-rock formations …

As competition among buyers intensifies, overseas investors are paying top dollar for fields where too few wells have been drilled to assess potential production, said Sven Del Pozzo, a senior equity analyst at IHS Inc. (IHS)

Marubeni Corp. (8002), the Japanese commodity trader, last week agreed to pay as much as $25,000 an acre for a stake in Hunt Oil Co.’s Eagle Ford shale property in Texas. The price, which includes future drilling costs, exceeds the $21,000 an acre Marathon Oil Corp. (MRO) paid last year for nearby prospects owned by KKR (KKR) & Co.’s Hilcorp Resources Holdings LP. In the Utica shale of Ohio and Pennsylvania, deal prices jumped 10-fold in five weeks to almost $15,000 an acre, according to IHS figures. …

Hunt, the closely held Dallas company founded by Texas tycoon H.L. Hunt in 1934, has only drilled “a handful” of wells in its Eagle Ford shale acreage, which means it doesn’t yet know how extensive or rich those holdings are, Del Pozzo said. Similarly, because drilling in the Utica shale in the U.S. northeast still is in its infancy, the geological characteristics and potential bounty of the region are hard to assess, said Manuj Nikhanj, head of energy research at ITG Investment Research Inc. …

U.S. gas explorers including Chesapeake and Devon Energy Corp. (DVN) are selling interests in shale fields to international energy companies such as Total and Sinopec to finance drilling on leases acquired during a “massive land grab” in 2007 and 2008 as oil and gas prices soared to record highs, O’Neill of Bloomberg Industries said.

The plunge in energy prices that followed Lehman’s bankruptcy and subsequent global financial crisis left operators like Chesapeake too poor to fulfill clauses that set deadlines for finishing wells on pain of forfeiting the leases, O’Neill said.

“These deals give the domestic exploration companies capital to drill so they won’t lose those assets, and gives the foreign companies the learning process they’re going to need to exploit shale resources on their own,” O’Neill said. ”

Depletion is causing negative cash flow

16 Jan 2012. Globe and Mail.

http://www.theglobeandmail.com/globe-investor/end-to-low-natural-gas-prices-inevitable/article2304425/

“End to low natural gas prices 'inevitable'. DAVID PARKINSON”

“Research by energy economist Peter Tertzakian shows just how economically strained natural gas exploration and development has become in the past few years, as the boom in high-tech shale-gas drilling has both massively swelled North American production rates and greatly increased costs.

He noted that shale wells not only cost “three to four times” as much to develop as conventional gas wells, their rate of depletion – the amount production declines over time, a natural phenomenon with all wells – is much higher. As a result, the average annual depletion rate across the industry has risen from about 23 per cent five years ago to more than 32 per cent now.

That, combined with the 20-per-cent surge in North American gas production in the past five years, (which makes for more and more depletions to replace each year), has meant it now costs the industry about $22-billion each quarter just to replace the annual depletions and maintain current volume levels. Yet those producers are seeing only about $12-billion a quarter in cash flow, he said.

“The resulting capital gap is now on the order of $10-billion a quarter, or a phenomenal $40-billion a year,” he said. ”