Are the good times of shale oil gas over?

Published March 18th, 2015 - 09:53 GMT
U.S. crude oil futures fell about 60 percent from a high over $107 a barrel in June to a six-year low under $43 Tuesday.
U.S. crude oil futures fell about 60 percent from a high over $107 a barrel in June to a six-year low under $43 Tuesday.

U.S. natural gas production could decline in 2016 for the first time in 10 years, driven by low oil prices after a decade of gangbusters growth from shale plays.

While most analysts forecast gas production will continue growing year-over-year, albeit at a slower pace, a couple of outlier analysts believe low oil and gas prices will prompt drillers to cut spending enough to reduce gas production next year.

Any talk of cutbacks is an early sign that low oil prices have slowed the U.S. shale gas boom that has revolutionized global markets and is expected to transform the nation into a net exporter of gas by 2020.

U.S. gas production has increased every year from 51.9 billion cubic feet per day in 2005 to a record 74.4 bcfd in 2014, a 43 percent increase. The U.S. Energy Information Administration expects gas output to reach 78.4 bcfd in 2015 and 80.0 in 2016.

Lack of consensus among analysts shows how much still depends on oil prices in the coming months.

U.S. crude oil futures fell about 60 percent from a high over $107 a barrel in June to a six-year low under $43 Tuesday.

“It all depends on market prices. If we get higher gas and oil prices in the next three or four months then gas production won’t decline next year,” said Randall Collum, managing director of Supply Analytics at energy data provider Genscape, which expects gas production to fall 1.1 bcfd next year.

Any pullback in gas production was considered unthinkable just six months ago.

“If you look back at what we said in October when oil was trading around $80 a barrel, we were forecasting gas production would grow by 2 bcfd in 2016,” Collum said.

Analysts at Bank of America Merrill Lynch also forecast gas production would decline in 2016.

The bank’s call is for a 1.3-bcfd production decline next year from 2015 due to declining growth in output from the Marcellus and Uticashales in response to a 50 percent drop in natural gas liquids prices, which are linked to oil prices.

Bank of America and Genscape also both forecast gas production from oil wells, called associated gas, would decline as drillers cut spending in oil plays like the Eagle Ford in South Texas.


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