Tag Archives: natural gas production

Chart of the Day, 2 Feb 2015: Still Talking about a Shale Gas Revolution?

The US government’s Energy Information Administration (EIA) has just come out with US natural gas production figures for November. But before we look at them, let’s glance at the long-term chart first (Source EIA here):

US Natural Gas Monthly Supply jpeg

Looks good if you are a fracking enthusiast, although the chart makes the shale gas surge seem like one continuous, seamless event. Scale up to the monthly chart and the situation looks a bit more nuanced:

US Dry Gas Production Nov 14 jpeg

For two years, 2012 and 2013, production almost flatlined, before jumping up again at the beginning of 2014. The latest numbers show dry gas production for November up 6.2% year on year, and the twelve month average rose 4.6%. What explains the two-year hiatus in the shale gas revolution? That’s easy: price (Source: Nasdaq).

Natural Gas Futures jpeg

The Holy Grail for shale gas enthusiasts is rising production and cheaper prices. In reality, however, what we have seen is rising production when prices are high, but stagnating production when prices fall. We haven’t really seen the same dynamic for tight oil in the US because we haven’t seen a prolonged period of falling prices–until now.

Meanwhile, the EIA’s latest Short-Term Energy Outlook (STEO) , released on 13th January, contains new forecasts that extend out through 2016 . The outlook is for a short plateau, then a renewed upward move:

STEO Jan 15 copyTo be honest, foresting oil and gas markets is a nightmare, the reason being that you are actually having to forecast two interlocking variables: price and production. Keeping that caveat in mind, here is the EIA’s price forecast:

Henry Hub Natural Gas Prices

The chart is a little difficult to read, but the EIA is looking at $3.44 per million Btu in 2015 and $3.86 in 2016. This compares with an average of $4.39 in 2014.

Putting price and production together paints a pretty optimistic picture from the EIA. Previously, the slump in prices in 2011 led to a plateauing of production in 2012. Further, a jump in prices in 2013 resulted in reinvigorated production growth in 2014. Of course, technology is changing, and this relationship may not hold. Indeed, that is what the EIA argues (from the 13th January STEO, click for larger image):

STEO Gas Production Commentary jpeg

There are a lot of moving parts to the story. I haven’t touched upon the implications for associated natural gas (gas produced as a byproduct of drilling for tight oil) stemming from the oil price slump. Nor have I dealt with the big spat between the journal Nature and the EIA over shale gas reserve calculations. More to come on both of these topics in future posts.

Overall, though, remember the “peak oil” theory is really one of peak cheap oil (see my posts here and here). and you can extend the same logic to gas. Consequently, the cornucopians have a golden opportunity to nail the peakists if they can show one thing: that the world can produce more oil and gas at the current low oil and gas prices. We have a testable hypothesis–let’s see what happens.

Data Watch: US Natural Gas Monthly Production November 2013

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 January 31st, and covers the period up until end-November 2013.

Data is reported in billion cubic feet (bcf). Key points:

  • November 2013 natural gas dry production: 2,047 bcf, plus 2.4% year-on-year
  • Average monthly production for the 12 months to November 2013: 2,020 bcf, +0.8% 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.

US Dry Gas Production Nov 13 jpeg

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).

Natural Gas Spot Prices Jan 14 jpeg

To put the current price of $5.5 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.

US Nat Gas Well Head LT jpeg

Data Watch: US Natural Gas Monthly Production January 2013

The U.S. 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 March 27 and covers the period up until January 2013.

Data is reported in billion cubic feet (bcf). Key points:

  • January 2013 natural gas dry production: 2,022 bcf, -1.1% year-on-year
  • Average monthly production for the 12 months to December 2012: 2,002 bcf, +4.1% over the same period the previous year

Since the end of 2011, the rate of production increase has levelled off (click chart above for larger image).

US Dry Gas Production January 2013 jpeg

Much recent media attention has centred on a so-called shale-gas revolution in the United States and in particular the ability of shale gas to boost overall volume of natural gas production. Many claims are made with respect to the prospective expansion in shale gas production in coming years including the following:

  • Shale gas will provide a low-cost source of natural gas, and thus cheap energy, for decades to come. This, in turn, will boost the competitiveness of the U.S. economy.
  • The U.S. will move toward an era of energy self-sufficiency, which will help buttress the country’s geopolitical security.
  • The scale of shale gas production will be sufficient to allow the U.S. to commence natural gas exports, thus transforming energy markets outside of the U.S. such as those in Europe.
  • Increased natural gas production in the U.S. will mitigate carbon emissions through displacing coal and so reduce the risk of dangerous climate change.

For these claims to be substantiated, significant year-on-year rises in U.S. natural  gas production will be required over an extended period. Through tracking monthly production of natural gas, a non-specialist can confirm or refute whether large rises in natural gas production are being achieved and, therefore, whether the claims associated with a shale-gas revolution are credible. In short, the monthly numbers allow you to evaluate the hype.