Oil & Gas Pro

US Natural Gas Production May Finally Be Dropping (3/29/11)

Today's information from the EIA shows US natural gas production may be finally showing the effects of the reduced gas rig count.  Total gas production decreased by 0.5% to 66.7 Bcfd in January which was the first significant reduction in seven months.  Only "Other States" showed a major production increase while both New Mexico and Wyoming had large reductions.  Louisiana's January gas production was essentially flat to the December level.

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landownerPermalink Reply by Bruce on March 29, 2011 at 16:23
Les, did this come out early today or after the markets were closed? I'm trying to figure out if the market already has figured this in the spot price or will we see a bump tomorrow.

Oil & Gas ProPermalink Reply by Les Bamburg on March 29, 2011 at 16:34
Bruce, I am not sure since I did not check the site until tonight.

landownerPermalink Reply by adubu on March 30, 2011 at 0:48
henry hub futures $4.30 up 3 cents this am pre-market (wed. 3/30) but futures got up to $4.48 last week
Permalink Reply by Scott on March 30, 2011 at 1:23
If we could get a couple months of dropping gas production, it might make the difference between 4.00 gas as a base price to a base of 5.00 gas. Typically this is the time gas prices tend to bottom out, however, we have prices near where they were at the peak of the withdrawl season. With an unsually hot summer predicted, and the predicted below normal temperatures for the next month, this might definitely fall in the bulls favor and maybe they can run with it. Then again, the shorts have had their way with gas for the last couple years and it's going to be tough to break their grip. Someone jump in on this comment if they disagree. I'd like to hear your thoughts.

landownerPermalink Reply by adubu on March 30, 2011 at 1:52
Scott---usually the low has been in Sept last few years. NG prices will fluxuate IMO between $3-$6 over next 5 years with avg around $5. The largest variable will be rigs decreasing when prices down close to $3 and rigs increases when close to $6. The supply will control more than demand since demand is more stable than volatility of # rigs drilling. Of course there will be short time spikes in prices along the way but will not be sustained for any lenght of time for that the way the market does. Drilling cost has not decreased as compared to NG prices for a lot of rigs are looking for OIL so rigs demand is still high across the board which with time will help NG since drilling for NG will decrease in the "DRY GAS PLAYS" but keep supply up in the "WET GAS with NGL or CONDENSATE PLAYS"
Permalink Reply by Scott on March 30, 2011 at 2:26

Your right about the low of the year usually in September. But typically we do trend much lower in the spring time as we transition from the withdrawl season to the injection season,  but for some reason this year it's not happening.

 


landownerPermalink Reply by ken hatcher on March 30, 2011 at 3:14
It seems recently shorts did not break the 3.8 barrier, be interesting to see what transpires down the road.

Oil & Gas ProPermalink Reply by Les Bamburg on March 30, 2011 at 3:25

Adubu, actually September and November are about the same over the last six years.  Both supply and demand will play key roles but demand is more volatile than supply in the short run and drives sudden movements in price.  Gas rig count will likely stabilize in the 2nd half of 2011 as HBP drilling decreases.  The NYMEX floor is probably closer to $4 due to the displacement of coal at that level generating incremental demand response.  


landownerPermalink Reply by adubu on March 30, 2011 at 4:34
Les B-- yes agree weather especially very cold like this year has more volatility on draw down in storage therefore can cause spikes in price but # drilling rigs in the new NG play of shale now has and will be more of influence on prices in future years to come. All this H drilling in shale with big supplies has never been experience before. The past market only had convenition drilling formation with vertical tech only which was easy to predict supplies avaliable  with supplies getting long in the tooth as wells decline in production. We are now in a new age of NG production in US and World wide therefore will take time for market to adjust to the way supplies can enter the market. For once the operator may have more control than demand. Of course this is IMHO only and my theory may not be very good. The Shale is now the OPEC for NG and can control the NG price by increasing or decrease drilling # of wells

Oil & Gas ProPermalink Reply by Les Bamburg on March 30, 2011 at 7:14

Adubu, the factors you mention are longer term effects.  Volatility is considered a day-to-day & week-to-week type event which is heavily influenced by weather,storage and outages.

 

By the way, gas supplies have never been easy to predict - nor gas demand.  That is reason natural gas has gone thru so many boom to bust cycles over the last 30 years.


landownerPermalink Reply by adubu on March 30, 2011 at 15:52
Les B--yes the factors mention does have long term effects and that was the major point I was talking about. The conventional drilling I agree was not easy to predict except the fact was we did not have many new fields and the supply continue to drop which had some predictablity since the USA was running out of onshore NG. Then  H drilling and frac ability of shale changed the game of supply.

landownerPermalink Reply by adubu on March 30, 2011 at 16:00
Les B -- agree drilling for HBP leases should be completed 2nd half 2011and things will level off for short time, then rigging  up and lying rigs down with infield drilling will control supplies which will effect NG prices more that acute events long term and visa vera NG prices.  These are just my thoughts. We will just have to see after few years what happens.  

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