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Natural Gas: Decoding Key Drivers in 2Q17

PART:
1 2 3 4 5 6 7 8
Part 6
Natural Gas: Decoding Key Drivers in 2Q17 PART 6 OF 8

EIA Downgraded US Natural Gas Production Estimates

Weekly US natural gas production

Market intelligence company PointLogic reported that weekly US dry natural gas production rose 0.6% to 70.2 Bcf (billion cubic feet) per day from April 6–12, 2017. However, dry natural gas production fell 3.3% from the same period in 2016.

The year-over-year fall in production is bullish for natural gas (FCG) (DGAZ) (UGAZ) prices. Higher natural gas prices have a positive impact on natural gas producers’ earnings such as WPX Energy (WPX), Range Resources (RRC), Gulfport Energy (GPOR), and Rice Energy (RICE). For more on natural gas prices, read Part 1 and Part 2 of this series.

EIA Downgraded US Natural Gas Production Estimates

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Peaks and lows 

The EIA (U.S. Energy Information Administration) estimates that monthly US dry natural gas production peaked at 76.8 Bcf per day in July 2015—the highest level ever. In contrast, production hit 71.5 Bcf per day in June 2016—the lowest natural gas production figure since June 2014.

US natural gas production fell due to weak natural gas and crude oil (USO) (UCO) (USL) (IEZ) prices in early 2016. For more on US natural gas drilling activity, read the previous part of this series.

EIA’s natural gas production estimates 

The EIA released its Short-Term Energy Outlook report on April 11, 2017. It estimates that US dry natural gas production will average 73.1 Bcf per day in 2017—0.8% lower than previous estimates. The EIA also estimates that production will average 77.1 Bcf per day in 2018—0.9% lower than previous estimates.

Production averaged 72.3 Bcf per day in 2016 and 74.1 Bcf per day in 2015. In 2016, production fell for the first time since 2005.

Natural gas is an associated product of crude oil. The rise in US crude oil production in 2017 will also lead to a rise in US natural gas supplies in 2017.

Impact of rising natural gas production 

In his energy policyPresident Trump said he would reduce regulatory restrictions on the exploration and production of natural gas and crude oil. If his policies are implemented, it would increase natural gas supplies in an oversupplied natural gas market. The rise in production in 2017 is the biggest bearish catalyst for natural gas prices.

Natural gas production influences US natural gas inventories. For more on natural gas inventories, read Part 3 of this series. Higher production and inventories can pressure natural gas prices.

In the next part of this series, we’ll take a look at the latest updates on natural gas consumption.

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