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Is This The End Of The U.S Shale Gas Revolution
Is This The End Of The U.S Shale Gas Revolution
While everyone is watching the oil bust, there is another bust going on – one for natural gas.
Before there was a boom in oil production in the United States, there was the “shale gas revolution.” That is where we all became familiar with terms like “fracking.” And the Marcellus, Haynesville, and Barnett Shales were famous long before the Bakken or Permian.
The surge in natural gas production crashed prices, fueling a huge increase in activity in petrochemicals and causing a major switch from coal to natural gas in the electric power industry. Aside from a few brief moments (such as the winter of 2014), natural gas has mostly traded around $4 per million Btu (MMBtu) or lower since the financial crisis of 2008.
Related: Environmental Groups Target Fossil Fuel Production On Federal Lands
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But unlike oil, the boom in shale gas did not stop with plummeting prices. U.S. natural gas production continued to climb. For example, production from the prolific Marcellus Shale – which spans Pennsylvania, West Virginia and Ohio – skyrocketed from less than 2 billion cubic feet per day (bcf/d) in 2009, to arecord-high of over 16.5 bcf/d this year. And the dramatic ramp up in production occurred over several years when prices were extremely low.
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A Reality Check For U.S. Natural Gas Ambitions
A Reality Check For U.S. Natural Gas Ambitions
Something unusual happened while we were focused on the global oil-price collapse–the increase in U.S. shale gas production stalled (Figure 1).
Figure 1. U.S. shale gas production. Source: EIA and Labyrinth Consulting Services, Inc.
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Total shale gas production for June was basically flat compared with May–down 900 mcf/d or -0.1% (Table 1).
Table 1. Shale gas production change table. Source: EIA and Labyrinth Consulting Services, Inc.
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Marcellus and Utica production increased very slightly over May, 1.1 and 1.5 mmcf/d, respectively. The Woodford was up 400 mcf/d and “other” shale increased 300 mcf/d. Production in the few plays that increased totaled 3.3 mmcf/d or one fair gas well’s daily production.
Related: The Broken Payment Model That Costs The Oil Industry Millions
The rest of the shale gas plays declined. The earliest big shale gas plays–the Barnett, Fayetteville and Haynesville–were down 25%, 14% and 48% from their respective peak production levels for a total decline of -4.8 bcf/d since January 2012.
The fact that Eagle Ford and Bakken gas production declined suggests tight oil production may finally be declining as well.
To make matters worse, total U.S. dry natural gas production declined -144 mmcf/d in June compared to May, and -1.2 bcf/d compared to April (Figure 2). Marketed gas declined -117 mmcf/d compared to May and -1 bcf/d compared to April.
Figure 2. U.S. natural gas production. Source: EIA and Labyrinth Consulting Services, Inc.
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Although year-over-year gas production has increased, the rate of growth has decreased systematically from 13% in December 2014 to 5% in June 2015 (Figure 3).
Figure 3. U.S. dry gas year-over-year production change. Source: EIA and Labyrinth Consulting Services, Inc.
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This all comes at a time when the U.S. is using more natural gas for electric power generation. In April 2015, natural gas used to produce electricity (32% of total) exceeded coal (30% of total) for the first time (Figure 4).
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Natural Gas Prices To Crash Unless Rig Count Falls Fast
Natural Gas Prices To Crash Unless Rig Count Falls Fast
Spending cuts for oil-directed drilling have dominated first quarter 2015 energy news but rig counts for shale gas drilling are too high.
Investors should pay attention to this growing problem. Bank of America fearssub-$2 gas prices now that winter heating worries are over. Low natural gas prices affect the economics for gas-rich oil production in the Eagle Ford Shale and Permian basin plays as well as for the shale gas plays.
Meanwhile, an orgy of over-production is taking place in the Marcellus Shale. Well head prices are now below $1.50 per thousand cubic feet of gas because of limited take-away capacity and near-saturation of regional demand. Even companies in the Wyoming, Susquehanna, Allegheny and Washington County core areas of the Marcellus play are losing money at these prices.
The rig count for shale gas plays has decreased by only half as much as for the tight oil plays. The reason appears to be that most shale gas companies do not have significant positions in the tight oil plays and must continue to drill to maintain production levels.
Shale gas rig counts have dropped only 19% for horizontal rigs and 25% for all rigs from 2014 highs. The corresponding decrease for tight oil plays is 41% and 46%, respectively, as shown in the table below.
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