- July 31, 2015
- Posted by: Art Berman
- Category: The Petroleum Truth Report
Something unusual happened while we were focused on the global oil-price collapse–the increase in U.S. shale gas production stalled (Figure 1).
Total shale gas production for June was basically flat compared with May–down 900 mcf/d or -0.1% (Table 1).
Marcellus and Utica production increased very slightly over May, 1.1 and 1.5 mmcf/d, respectively. The Woodford was up 400 mcf/d and “other” shale increased 300 mcf/d. Production in the few plays that increased totaled 3.3 mmcf/d or one fair gas well’s daily production.
The rest of the shale gas plays declined. The earliest big shale gas plays–the Barnett, Fayetteville and Haynesville–were down 25%, 14% and 48% from their respective peak production levels for a total decline of -4.8 bcf/d since January 2012.
The fact that Eagle Ford and Bakken gas production declined suggests tight oil production may finally be declining as well.
To make matters worse, total U.S. dry natural gas production declined -144 mmcf/d in June compared to May, and -1.2 bcf/d compared to April (Figure 2). Marketed gas declined -117 mmcf/d compared to May and -1 bcf/d compared to April.
Although year-over-year gas production has increased, the rate of growth has decreased systematically from 13% in December 2014 to 5% in June 2015 (Figure 3).
This all comes at a time when the U.S. is using more natural gas for electric power generation. In April 2015, natural gas used to produce electricity (32% of total) exceeded coal (30% of total) for the first time (Figure 4).
Figure 4. Monthly shares of total power generation by fuel, 2001-2015. Source: EIA.
This is partly because of low natural gas prices but is mostly because of EPA clean air regulations that went into full effect in 2015 that are forcing retirements of older coal plants.
For now at least, the U.S. is producing less natural gas because shale gas is stalled and conventional gas production is in terminal decline at 10% per year. The country is consuming more gas for electric power generation thanks to government regulations, and we are poised to export more gas outside the country both as LNG and as pipeline gas to Mexico.
Combined LNG and pipeline exports plus coal-plant retirements are estimated to total 7 bcf/d of gas this year (10% of forecasted lower 48 states production), 12 bcf/d in 2016 (17%) and 18 bcf/d by 2020 (25%) (Figure 5).
Meanwhile, the global price of LNG is in the gutter. Landed prices in Asia are now less than $8 per mmBtu and, in Europe, are less than $7 per mmBtu (Figure 6).
Figure 6. World LNG estimated June 2015 landed prices. Source: FERC.
(click image to enlarge)
The appeal of U.S. LNG export was that prices in Asia were more than $15 per mmBtu and more than $11 in Europe before mid-2014. Because LNG price is linked to crude oil price, all that changed when oil prices collapsed. Also, demand has fallen considerably and nuclear power options are being re-started for power generation in Japan.
The cheapest “tolled” export option (e.g., Cheniere’s Sabine Pass Project) breaks even at about $9.30/mmBtu based on $3.00 Henry Hub price plus 15% tolling (Figure 7).
Woops! LNG export from the U.S never made competitive economic sense to me but now, it looks dead-on-arrival.
The other big appeal of LNG export, of course, was that we had 100 years of the stuff so it wouldn’t affect our supply or the price by very much. Now supply is stalled and demand is rising. If this continues, price increases won’t be far behind.
The stalling of gas production is a temporary anomaly but it is also a red flag. In July 2015, the future for cheap and abundant natural gas for decades looks increasingly uncertain.
*The Saga Of Casey, Ernest Lawrence Thayer.