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Natural Gas Production Projected to Slow by July

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Natural gas production

The EIA (U.S. Energy Information Administration) released its “Drilling Productivity Report” on June 8. By July, the EIA expects there to be less natural gas production at five key shales than there was in May. It expects production at the Utica Shale to increase and production to remain unchanged at the Marcellus Shale.

Aggregate natural gas production by the seven key shales is expected to drop by 0.7% in July compared with production in May. The EIA is also projecting that crude oil production by the seven key shales is expected to drop by 2.9% over the same time frame.

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Utica to gain, Bakken to lose

The Utica Shale is expected to increase gas production the most, by 3.7%, in the next two months. At the Marcellus Shale, the biggest natural gas–producing shale in the United States, July production is expected to stay at about the same level as it was in May.

The Eagle Ford Shale, the second-largest natural gas producer of the seven unconventional shales, may see production fall by 2.6%. The Bakken Shale is expected to witness a 3.3% drop in the next two months, the most significant decrease in natural gas production among the shales. The Bakken, however, has a much smaller gas production base than the Marcellus or Eagle Ford shales do.

How producers will be affected

Unchanged natural gas production at the Marcellus Shale may not affect producers such as EQT (EQT) much. Reduced Eagle Ford Shale production may negatively affect producers such as Encana (ECA). Reduced Niobrara natural gas production will also negatively affect producers such as Bonanza Creek Energy (BCEI). Meanwhile, greater Utica production will benefit Chesapeake Energy (CHK).

EQT accounts for 0.84% of the Energy Select Sector SPDR Fund (XLE).

For more on this sector, consult Market Realist’s Energy and Power section.

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