The U.S. Energy Information Administration’s, or EIA, STEO (“Short-Term Energy Outlook”), released on April 7, projects that total marketed natural gas production will grow 5% to 78.47 Bcf (billion cubic feet) in 2015. Production will grow a further 1.9% to 79.96 Bcf in 2016. The EIA estimates that marketed natural gas production totaled 74.72 Bcf in 2014.
Marketed natural gas is the gas produced before the extraction of associated liquids including propane and butane. The removal of these liquids leaves dry natural gas.
Production trends in the past months
End-of-October 2014 stocks were at a five-year low when the 2014–2015 heating season began. Nevertheless, record natural gas production, coupled with new pipeline projects, was sufficient to meet winter heating demand. In the period November 1 through March 31, natural gas production averaged 71 Bcf per day. On December 20, production hit a record high of 73.5 Bcf per day, according to Bentek.
High production levels are bearish for natural gas prices. Weak prices hurt the margins of gas-producing companies including Range Resources (RRC), EQT (EQT), Devon Energy (DVN), and QEP Resources (QEP). Combined, these companies make up ~4% of the Energy Select Sector SPDR ETF (XLE).
The EIA continues to be bullish about natural gas production in 2015. For more on this topic, read Must-know: Why the EIA is bullish about natural gas production. So continued production growth sets a grim stage for natural gas prices. The EIA expects production levels to increase in 2015 as well, despite lower prices.
Natural gas inventories are governed by natural gas production and consumption trends. The next part of this series looks at how strong consumption trends could help push prices upwards.