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Natural Gas Production Estimates Pressure Natural Gas Prices

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Sep. 8 2015, Published 10:16 a.m. ET

Natural gas production 

The latest figures suggest that the natural gas production from the lower 48 states of the US continued to rise on a weekly and yearly basis. The total natural gas output from the lower 48 states was at 81.89 Bcf (billion cubic feet) for the week ending September 4, 2015. This is 5.70% more than the natural gas produced during the same period in 2014. The natural gas production from the dry production and well-head production also rose for the week ending September 4, 2015—compared to the previous week.

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EIA estimates 

In its August monthly STEO (Short-Term Energy Outlook) edition, the EIA (U.S. Energy Information Administration) reported that natural gas production might rise by 4 Bcf per day to 78.52 Bcf per day in 2015 and by 1.8 Bcf per day to 80.52 Bcf per day in 2016, respectively. However, natural gas production fell in May and June 2015.

The improvement in the drilling efficiency could support the rise in natural gas production. The rise in natural gas production will come from the Marcellus Shale region in the lower 48 states of the US. The rise in domestic natural gas production may curb natural gas imports in the long term and short term. 

The estimates of rising natural gas production will continue to put pressure on natural gas prices in the oversupplied market. The speculation of rising natural gas inventories will also negatively influence natural gas. The consensus of the rising inventory implies that supply is increasing and demand is slowing.

The long-term oversupply concerns are dragging natural gas prices lower. As a result, they impact natural gas producers’ profitability like Range Resources (RRC), Gulfport Resources (GPOR), and Devon Energy (DVN). Combined, they account for 3.44% of the SPDR Oil and Gas ETF (XOP). These stocks’ natural gas production mix is more than 40% of their production portfolio. They also affect energy ETFs like XOP and the Energy Select Sector SPDR ETF (XLE).

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