Special Report: Natural gas

9 Comments on "Special Report: Natural gas"

westexas on Sun, 1st Feb 2015 4:05 pm 



Citi Research puts the underlying gross decline rate in existing gas production in the US at about 24%/year. At a 24%/year gross decline rate, in order to just maintain existing US gas production for four years, the US would have to put on line the productive equivalent of about 100% of current gas production over the next four years*.

As an example of why this is a reasonable estimate, the observed year over year decline in Louisiana’s marketed natural gas production from 2012 to 2013 was 20%; this was the net decline, after new wells were added. The gross decline rate from existing wells in 2012 would be even higher.

*At a 24%/year decline rate, existing production would be down to 38% of current production in four years, but I am stipulating a flat production rate.

rockman on Sun, 1st Feb 2015 6:48 pm 



“As new technology drives a natural gas revolution in America”. And one more time: there is nothing “new” about the technology. It’s the same as it was in 2008 when horizontal drilling of the shales, like the Haynesville in E Texas, dominated activity. And this boom was driven by the same factor that had driven the oil shales: high commodity prices. With NG pushing north of $10/mcf the rig count was dominated by developing these plays. And then NG prices crashed and 75% of the rigs pulled out of the plays.

The maintenance of US NG production has not come from the gas shales but from NG associated with the oil shales. The one BIG exception is the Marcellus Shale. It has become the one shining star and now accounts for almost 20% of total US production. But just like every fractured reservoir the MS wells deplete quickly. Wells have to be continually drilled to maintain production levels.

From 2007 thru 2013 NG production from all gas and oil shales increased 600%. But that phenomenal growth began tapering off since 2012 with only a 13% increase. The slow down is coincidental with a 25%+ decrease in NG prices.

Offshore NG production peaked in 1997 at 5.9 tcf/yr. Since 2001 it has declined 67% from 5.8 tcf/yr to 1.9 tcf/yr in 2013. For that same period production from all US conventional gas wells has declined 38%.

Bottom line IMHO: with the exception of the Marcellus Shale (which appears to be slowing down with lower prices) the future of US NG production (at current oil/NG price levels)does not look very promising.

eugene on Sun, 1st Feb 2015 9:20 pm 



Hang in there Rockman/Westexas, reality will win as it always does. Helps me to read your input. Thanks.

buddavis on Mon, 2nd Feb 2015 8:00 am 



I spoke with an operator in the Marcellus who I had done business with in the past. He was good as long as he was getting $2/mcf. Drilling for 5-6 million per well with an average of 10 bcf per well. They were averaging 2 BCF of production the first 12 months. But they were also selling at a $1 discount to Henry Hub.

They were in a very good spot, so I imagine even the marcellus will start to see rigs leaving or stacking up.

rockman on Mon, 2nd Feb 2015 8:44 am 



Bud – The discount to HH isn’t a surprise. It can cost $1+/mcf to get NG from HH to New England.

westexas on Mon, 2nd Feb 2015 8:59 am 



Based on the Citi Research report, which seems to be confirmed by the Louisiana decline, in order to offset declines from existing wells, we have to put on line the productive equivalent of the current production from the Marcellus–every year.

So, in order to maintain current US gas production for 10 years, we only need to put on line the productive equivalent of the current production from the Marcellus play, times 10.

buddavis on Mon, 2nd Feb 2015 9:18 am 



rock

He was expecting new lines out of the marcellus through VA, GA, Fla and to the gulf coast for exporting. Have no idea if those are coming, but without them, I suspect they are slowing down. His company has different economics and he was in a great location, so I can imagine what is happening elsewhere.

Ralph on Mon, 2nd Feb 2015 10:31 am 



It will be interesting to see how much the oil fracking bubble has been shoring up US NG production, and keeping prices artificially low.

The drop in shale oil production will bring a drop in associated gas production with it, as well as leaving lots of rigs idle and cheap to hire, so I expect NG prices to rise and more rigs dedicated to NG drilling.

That of course assumes that a deflationary spiral does not collapse demand.

I do not know when the peak of NG production will happen, in the US or worldwide, but the extreme decline rates from NG wells will mean that the production cliff will be extreme when it comes.

Alternatively, peak oil and coal may be enough between them to collapse industrial civilisation and a lot of NG will remain in the ground.

Speculawyer on Mon, 2nd Feb 2015 11:46 am 



Rock, I certainly can’t doubt your knowledge that both fracking and horizontal drilling existed before the current boom and that the main driver of shale revolution was higher oil prices.

However, I think you’ll agree that during the past 10 years, the oil patch has come up with lots of innovations and optimizations that have allowed them to frack more efficiently and cheaply than you could long ago. So oil/NG price that is needed to do this fracking has probably dropped in the past 10 years.

But I agree that at $49/barrel and $2.50 for natural gas, the current price is probably too low to support the continued fracking such that we are seeing the current bust. And that will cause the price of oil/NG to rise once the glut is consumed and the decreased production hits the market.

Of course predicting how long that will take and what the needed price will be to resume the fracking is extremely difficult. That would require knowing, how good the improvements have been, how much oil Russia, Iraq, Libya, etc. will produce, how much demand will recover in Europe/China, etc.

Such a difficult business because you have to make big decisions with such incredibly imperfect information.