Long-term production trends
The EIA’s (US Energy Information Administration) December STEO (Short-Term Energy Outlook) projects a 5.5% year-over-year, or YoY, increase to 74.26 Bcf (billion cubic feet) in total marketed natural gas production in 2014.
The EIA projects that total marketed natural gas production will grow another 3.1% to 76.58 Bcf in 2015.
Short-term production trends
The most recent EIA data available is from September. According to the EIA, as of September, dry natural gas production was 4.6 Bcf/d (billion cubic feet per day) higher than it was last September.
According to the STEO, production usually declines in September. It declines due to seasonal maintenance. However, this year, production in September increased—compared to August. It increased due to booming natural gas production.
According to Bentek Energy, dry natural gas production averaged 70.8 Bcf/d since November 1. This is 4.8 Bcf/d higher—compared to same period last year.
The EIA continues to be bullish about natural gas production in 2014 and 2015. Read Must-know: Why the EIA is bullish about natural gas production to learn more.
The EIA projects that 2015 will be the tenth consecutive year of production gains. This is due to shale plays—especially the Marcellus.
Shale plays drive production growth
Shale plays drove an increase in natural gas production in the last few years. Production from shale plays averaged 36.4 Bcf/d for April–September. This is an increase of 15%—compared to last year.
The Marcellus Shale has been a key contributor. According to the EIA, production in the Marcellus grew by nearly one-third.
Weather will influence natural gas prices
Despite record production levels, inventories at the end of November were still 6% lower than last year’s inventory levels. According to the STEO, they were 10% lower than the five-year average from 2009–2013.
This means that prices could spike if this winter is anything like last winter. However, the EIA forecasts that residential and commercial demand will be lower due to milder weather forecasts and higher forecasted natural gas prices. The EIA projects that inventories will be 1,431 Bcf at the end of March 2015.
Therefore, it remains to be seen whether weather or production will influence natural gas prices more. Investors will watch the weather and production to determine the natural gas price outlook.
Strong prices are positive for gas-producing companies’ margins—like Southwest Energy (SWN), Cabot Oil and Gas (COG), WPX Energy (WPX), and QEP Resources (QEP). Since most of these companies are part of the Energy Select Sector SPDR ETF (XLE), the energy price outlook will likely affect XLE as well.