Wednesday, August 31, 2011

US Natural Gas Production Near Record Levels

The June EIA gas production numbers put US gas production at 69.47 billion cubic feet per day. See Production in 2010 was the highest since 1973, and the June 2011 production was the 4th month of increased production and from high previous levels.

What is causing the near record production?

Not high gas prices. Gas has declined from $13 in July 2008 to less than $4 per thousand cubic feet now.

Shale gas production is the answer and increasingly from the Marcellus which is now producing about 4 billion cubic feet per day or about 6% of total production. And this enormous shale gas production is happening at current low, low gas prices.


  1. Not to discount the huge amount of gas produced at low prices, but I think the more important question is "why is it happening at such low prices?"
    liquid-rich zones
    JVs and M&A activity
    servicing debt
    producing cheapest gas first
    use it or lose it lease terms

    Will the picture be the same 5 years from now? Drilling is required to sustain production; will the drivers for drilling 5 years from now be similar to the drivers now? If not, what will drive production? How will this affect cost and price to the consumer?

  2. All good questions. At least in the Marcellus even at today's low prices what is driving production is profits. Companies are making money. Not as much as they would at $5 per mcf or $6 but they are earning a return on investment. In other plays, prices may have to move up to $5 or $6 to sustain production in 5 years. Some major energy consultancies see a lot of gas being produced at $4 though and so far that has been the case.

    Demand is increasing as coal loses market share and oil heating also loses market share to gas. Some increase in price is likely in my view but not much because huge amounts can be produced at $6.

  3. Companies drilling to hold leases is definitely high on that list.

    I was able to hear Secretary of DEP Mike Krancer speak at the PIOGA Eastern Oil & Gas Conference this morning and he offered a startling statistic in response to questions from the audience about pipelines: Out of the 3,700 or so Marcellus wells that have been drilled, 2,000+ are not yet feeding gas because of a lack of market.

    He was also asked about bromide levels in PA waterways since Marcellus discharge was halted. He danced around the question and would not give any insight other than saying that they are testing, and that no one data point is going to mean anything...

    In his comments, he really made it seem as though conventional gas wells were not the target of the April 19th letter, and said that DEP will be looking "very closely" at those companies who refuse to send in a legally binding "confirmation" letter, which seemed to be a thinly veiled threat towards anyone continuing to dispose through the grandfathered municipal plants. But when pressed to state clearly that conventional wells are not the target of the DEP, he would only state that "the letter speaks for itself" The whole exchange was rather odd.


  4. Mike:

    Thank you for the report on the Secretary's remarks today. I had seen data that 1600 Pa Marcellus wells were connected to a pipeline. As you point out that means 2,000 drilled wells are not. This data point makes the Marcellus production numbers even more remarkable.

    Your discussion about what the Secretary said regarding drilling wastewater and treatment plants is also important