On Tuesday, the U.S. Energy Information Administration (EIA) released its monthly Natural Gas Gross Production Report. Data from the report showed natural gas production in May in the lower 48 U.S. states was unchanged from April output. Gas production in May totaled 72.39 billion cubic feet per day. May levels were 4.3% above the same month a year ago and very close to the record high gas output level of 72.74 bcf per day that was hit in January.
Monthly production numbers had started to decline in February and March sparking concern that the steep decline in gas drilling was finally impacting production. Natural gas drilling has been on the decline since peaking in July 2008 (see chart below) and had become largely uneconomical with record low gas prices experienced this spring. These factors led to expectations that production would start to decline. So why is production back to near-record levels even though natural gas rigs are at their lowest levels since 1999? Because declining production from decreased drilling in less-profitable "dry" natural gas plays such as the Haynesville Shale is offset by growth in production from the more profitable liquids-rich natural gas production areas such as the Eagle Ford and wet areas of the Marcellus Shale, along with growth in domestic crude oil production. At the current levels of drilling for natural gas liquids and crude oil there is a significant amount of associated gas that ends up in the market after processing these products.
According to the EIA’s July Short Term Energy Outlook, production is expected to continue to grow by 1% year over year for 2013. However, the EIA expects a small drop in production in the summer months before picking up again at the end of the year, reflecting the decline in rigs since October.
The full July Natural Gas Monthly report can be found at http://www.eia.gov/naturalgas/monthly/pdf/ngm_all.pdf