Natural gas production trends
Since 2008, a considerable amount of natural gas supply has come online. It has come online without an equivalent increase in demand. This is thanks to the “shale revolution.”
The shale revolution refers to the widespread application of new technologies—like hydraulic fracturing and horizontal drilling. The new technologies develop areas that were previously uneconomical for drilling.
The U.S. Energy Information Administration (or EIA) released its Short-Term Energy Outlook (or STEO) on September 9. It projects that natural gas-marketed production will grow by an annual rate of 5.3% to just over 74 billion cubic feet (or bcf) per day in 2014. It projects it will grow by 2.1% to just under 76 bcf per day in 2015.
The STEO also reports that significant increases are already being seen in the lower 48 states.
Most of the production is expected to come from shale gas plays. Shale gas is projected to grow to 19.8 trillion cubic feet (or tcf) in 2040.
Major producing regions
According to EIA data, increasing natural gas production is driven by higher production in the Marcellus and Utica shales. Click the following links to learn more about the Marcellus and Utica shales.
The output from the Marcellus field will average 15.9 bcf per day in September—up 31% from last year.
The Utica Shale has also become one of the fastest-growing gas-producing regions in the U.S. Production increased from ~155 million cubic feet (or MMcf) per day in January 2012 to ~1.3 bcf per day in September 2014. It has experienced growth of approximately eight times in less than three years.
Excess production can put pressure on prices
Natural gas prices can remain relatively depressed. Shale resource development has allowed companies to produce natural gas at lower prices.
Prices have already been under pressure due to a mild summer weather. A supply glut could depress prices more.
Weak prices hurt gas-producing companies’ margins. The companies include EQT Corp. (EQT), Range Resources (RRC), EOG Resources (EOG), and Chesapeake Energy (CHK). All of these companies are components of the Energy Select Sector SPDR ETF (XLE).
In the next part of the series, we’ll discuss the factors that could support natural gas prices in the upcoming months.