The U.S. Energy Information Administration’s (or EIA) February Short-Term Energy Outlook (or STEO) projects total dry natural gas production to grow by ~5% to 73.9 Bcf (billion cubic feet) in 2015 and by ~2% to 75.38 Bcf in 2016. The EIA estimates dry natural gas production was 70.43 Bcf in 2014.
High production levels are bearish for natural gas prices. Weak prices hurt the margins of gas-producing companies such as Southwest Energy (SWN), EQT Corporation (EQT), Devon Energy (DVN), and QEP Resources (QEP). All these companies are part of the iShares Global Energy ETF (IXC) and make up ~2% of the fund.
Dry gas production
According to the EIA, dry gas production for the lower 48 states was at record highs this winter and has averaged 72 Bcf per day so far in March.
Dry gas production is up 8.7% compared to last year at the same time, according to the EIA.
Dry natural gas is the natural gas that remains after liquids such as propane and butane have been removed from the marketed natural gas. Dry natural gas is also known as consumer-grade natural gas.
A bullish EIA
The EIA continues to be bullish about natural gas production in 2015. Read Must-know: Why the EIA is bullish about natural gas production to find out more.
Continued production growth has thus set a grim scenario for natural gas prices. The EIA forecasts that monthly average prices will remain below $4 per MMBtu levels throughout most of 2015.
Natural gas inventories are governed by natural gas production and consumption trends. In the next part of this series, we’ll see if strong consumption trends could help push prices upward.