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Why Did US Dry Natural Gas Production Decline?

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Weekly US natural gas production

US dry natural gas production decreased 0.5% to 78.1 Bcf (billion cubic feet) per day on March 1–7, 2018, according to PointLogic. However, production increased 9% or by 6.4 Bcf per day from a year ago.

US natural gas prices have declined ~5% in the last 12 months partly due to rising supplies. The Vanguard Energy ETF (VDE) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) have fallen ~1.1% and 4.5%, respectively, during the same period. These funds have exposure to upstream energy companies.

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Drivers of natural gas production 

Higher oil prices and natural gas pipeline capacity have been driving the rise in natural gas production. Natural gas is usually an associated product of crude oil. Higher oil prices could increase US oil rigs, which could increase US natural gas supplies. US crude oil prices have risen ~44.2% since June 21, 2017, partly due to supply cuts. The iShares US Energy ETF (IYE) and the iShares Global Energy ETF (IXC) have risen ~7.2% and ~11.2%, respectively, since June 21, 2017. These funds have exposure to energy companies.

Natural gas production estimates  

Annual US natural gas production has risen 48% since 2005. Production averaged 73.6 Bcf per day in 2017. On March 6, 2018, the EIA said that US natural gas production could average ~81.7 Bcf per day in 2018—1.7% higher than the February 2018 estimates. The EIA also estimates that US natural gas production could average ~82.67 Bcf per day in 2019—0.2% lower than the February 2018 estimates. US natural gas production’s annual average could hit record highs in 2018 and 2019.

Impact 

Record US natural gas production could have a negative impact on natural gas prices in 2018.

Next, we’ll discuss US natural gas consumption.

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