The US government agency the Energy Information Administration (EIA) issues data on U.S. natural gas production, including shale gas, on a monthly basis with a lag of roughly two months. The latest data release was made on February 28th, and covers the period up until end-December 2013.
Data is reported in billion cubic feet (bcf). Key points:
- December 2013 natural gas dry production: 2,090 bcf, plus 2.1% year-on-year
- Average monthly production for the 12 months to December 2013: 2,023 bcf, +0.9% over the same period the previous year
Since the end of 2011, production growth has stalled (click chart below for larger image), with the year-on-year 12-month average bumping along a plateau.
Natural gas well-head prices exhibit seasonality, with winters generally seeing stronger prices due to heating needs. The recent polar-vortex induced cold snap in the U.S. has pushed prices up to their highest since February 2010 (here, click for larger image).
To put the current price of $5.0 per million British thermal uni (Btu) in perspective, a longer term monthly time series going up until end December 2012 is given below (click for larger image). Note that natural gas production is very inelastic over the short term. Accordingly, the market is brought back into equilibrium during periods of strong demand through large jumps in price. However, these don’t generally prompt an investment surge in natural gas infrastructure since they are viewed as temporary in nature. Only if prices remain elevated beyond winter would we likely see a supply-side response. However, prices are already coming off their highs as we move toward spring.
Has US natural gas production plateaued because there is no demand for any more gas at current prices, or what? The market is pretty complicated. Maybe much of production is locked into contracts at low prices.
Incidentally, can you set up the blog to list recent comments? At present I’ll miss any comments or responses posted to old entries.
You are right to point out the demand side issue as well; and it is complicated. We have seen substitution out of coal into natural gas for electricity generation, but this trend appears to have stalled. Also, any switching out of gasoline into natural gas vehicles is exceptionally difficult due to the upfront costs of natural gas vehicles and storage capacity constraints (switching is only really possible with larger vehicles). We also have a tug of war between technological advances reducing costs and the fast depletion rates at the better, easily accessible shale gas formations. Nonetheless, the market is telling us something: producers don’t appear to want to increase production at a price of $4 per million Btu or below. There are lots of producers, so if technology was pushing production costs down sharply you would expect to see competition driving prices lower. It isn’t happening.
However, we will eventually see the extent of the constraint on the supply side once LNG export terminals come on stream. This should allow arbitrage between U.S. market prices and higher overseas market prices. This assumption appears to sit behind the EIA’s forecast of supply picking up again in two to three years’ time coincident with a rise in price from $4 toward $6. Nonetheless, the export numbers being forecast are pretty negligible in terms of global supply and demand (and would certainly do little to reduce European dependance on Russian natural gas).
As you say, lots of moving parts. But what we are seeing currently is annual production growth of one percent of so, and a gradual firming of natural gas prices. This is hardly the stuff of a continuing shale gas revolution. We should, however, get a sense of whether the revolution will recommence in a few years time within a year or so through looking at depletion rates in major areas like the Marcellus shale. We could see a situation where gas prices move to $6 but with no production growth as the Marcellus and other areas go into decline (technology losing the race against depletion). And once we get above $6 on the cost side, LNG export economics look less compelling. At that point, the shale gas revolution would be well and truly over.