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Natural Gas Production Impacts Natural Gas Prices

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Natural gas production

On July 7, 2015, the EIA (U.S. Energy Information Administration) released its July 2015 STEO (Short-Term Energy Outlook) report. The data showed that natural gas production fell by 1.2 Bcf (billion cubic feet) per day to 78.2 Bcf per day in June 2015—compared to the levels in April 2015. The fall in production was mainly due to maintenance and construction works for expansion facilities in the Marcellus gas producing region.

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The EIA’s preliminary estimates suggest that natural gas production might rise by 4.3 Bcf per day, a rise of 5.7%, in 2015—compared to the previous year. It also expects production to rise by 2%, or 1.6 Bcf per day, in 2016—despite the recent fall. The rise in drilling efficiency will contribute to the rise in natural gas production.

The rise in natural gas production will benefit natural gas drillers like Schlumberger (SLB), Baker Hughes (BHI), and Halliburton (HAL). The Marcellus Shale region will be the key contributor to increasing natural gas production. This will curb the demand for natural gas imported from Canada. It’s also expected that the rising demand from Mexico for electric power plants will be supplied by the Eagle Ford Shale region in south Texas

However, rising natural gas production, mild weather estimates, rising gas stocks, and slowing demand could negatively impact natural gas prices. They may continue to put pressure on oil and gas ETFs like the Energy Select Sector SPDR ETF (XLE) and the Spider Oil and Gas ETF (XOP). These ETFs consist of oil and gas producing companies.

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