Oil and Gas News

U.S. Gas Production, Consumption Hits Record in 2015

The market for natural gas continues to grow as the U.S. currently produces and consumes more gas than ever before, according to EIA’s 2015 Natural Gas Annual.

Prices for consumers continue to decline, although residential pricing for heating remains highest in the Eastern United States. Net imports also continue to decline as the country starts to export more natural gas and as LNG export facilities begin to come on line.

Production

Domestic dry natural gas production totaled 27.1 Tcf, or 74.1 billion Bcf/d in 2015, a 4.5% increase above 2014.

[U.S. Gas Production, Consumption Hits Record in 2015]

Source: EIA

Pennsylvanian production increased to 13.04 Bcf/d in 2015 over 11.56 Bcf/d in 2014. This is the third consecutive year that the state has recorded the largest total gain in annual production.

Ohio recorded the largest increase, percentage-wise, of any state, for the second consecutive year. Dry natural gas production in Ohio doubled from 1.31 Bcf/d in 2014 to 2.62 Bcf/d in 2015. With the exception of Louisiana and Texas, steady or continuing to increasing production is the norm across the U.S.

Consumption

Total natural gas deliveries to residential, industrial, commercial, and power generation consumers increased 2.8% to 25.1 Tcf, or 68.6 Bcf/d, in 2015.

[U.S. Gas Production, Consumption Hits Record in 2015]

Source: EIA

The favorable economics of gas generation continue to drive gas demand as coal plant retirements continue. Power sector consumption of natural gas increased 18.7% to a record level of 26.5 Bcf/d while natural gas for vehicle fuel also increased 11.6%. Deliveries to the residential, commercial, and industrial sectors dropped by 9.4%, 7.7%, and 1.5%, respectively, from 2014 levels, offsetting the increase in power consumption.

Pricing

Natural gas residential delivery prices have continued the long-term decline from their mid-2000s highs. 2014 featured a slight increase in prices, due to price spikes brought about by extreme winter weather and transportation issues in the Northeast.

[U.S. Gas Production, Consumption Hits Record in 2015]

Source: EIA

States with the highest prices for delivery to residential consumers were primarily located in the capacity-strained Northeast and warmer Southeast. West Coast pricing was also in the upper percentile, due to a lack of regional production and dependence on Canadian imports.

[U.S. Gas Production, Consumption Hits Record in 2015]

Source: EIA

NatGas Imports and Exports

Natural gas imports rose year-to-year for the first time since 2007, increasing 0.8% to 2,718 Bcf. Pipeline imports from Canada’s Western shale basins into the Upper Midwest and Pacific Northwest accounted for a large percentage of the total. LNG from Trinidad/Tobango, Norway, and Yemen to the East and Gulf Coasts provided a small share of the total.

Higher imports were offset by the first year-to-year rise in gas exports since 2012 and net imports continued their steady downward trend.

[U.S. Gas Production, Consumption Hits Record in 2015]

Source: EIA

Exports increased 17.8% from 1,514 to 1,783 Bcf, with 1,054 Bcf going by pipeline to Mexico, roughly 700 Bcf to Eastern Canada, and 28 Bcf by LNG tanker. Texas LNG shipments went to Brazil, Egypt, and Turkey while Alaskan loads were sent evenly to Taiwan and Japan.

Good Regulation” Won’t Hurt Texas Oil And Gas

The price of oil will be higher next year than it is now and regulation won’t kill the industry. Those are two takeaways from one of the state’s top oil and gas officials.

Ryan Sitton is a Republican politician. But contrary to what some of his colleagues say about government regulators of the oil & gas industry, Sitton says they are not necessarily a “job-killing bureaucratic communist machine…”

Sitton was speaking to the NAPE convention underway in Houston, that’s an industry group for people who develop oil & gas fields.

”Too often these days when we talk about the world of regulation, it’s so often discussed in political jargon that we miss the true impacts of good regulation,” Sitton told a hundred or so conventioneers at the NAPE event in downtown Houston.

Sitton is one of the three elected officials on the Railroad Commission of Texaswhich regulates drilling.

One on one, he told News 88.7 that the commission needs to do a better job of working with communities. His comment was prompted by a question about a new state law that prevents local communities from banning the controversial drilling method called fracking and leaves it to the state commission to oversee.

“You asked me if this is something we can live with; absolutely. I live in a little town, Friendswood and we’re right next to the Friendswood Oil Field. There are pipelines and oil wells in our town,” Sitton told us.

Sitton said Friendswood officials have told him that they don’t know anything about fracking and want the experts at the state commission to regulate it.

But is the commission up the job? By its own admission, it’s having trouble hiring enough inspectors. Sitton told us they’re asking the state legislature to authorize the hiring of more inspectors. 

But the question Sitton says he gets asked most often: where’s the price of oil headed?

“I believe we will see $60 a barrel next year, “ Sitton told the NAPE audience, citing decreases in oil production that he said is closing the gap between output and demand.

Analysts: Permian Holds Seeds Of Production Growth

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As oil and gas production continues to decline in basins across Texas, the Permian Basin still holds the potential for impressive economic returns and substantial production growth, according to a recent report by Bernstein Research.

Catalyzed by the shale revolution, U.S. producers added nearly 4 million barrels per day (MMbbl/d) starting in 2011, with Texas contributing more than half of that growth, the analysts said.  Texas producers began pumping the brakes as oil prices collapsed, but production in the Permian Basin “has been growing in a time when others are struggling to stay flat,” according to the report.

“The shale revolution may have begun in gas and may have landed on other plays following that, but it has clearly ended in the Permian,” they said.

The basin makes up about one-fifth of U.S. oil production today. Legacy and “non-horizontal” or non-shale growth has been maintained at 1 MMbbl/d since 2011, with roughly 1 MMbbl/d of horizontal growth.

Currently, Permian production is composed of about 0.5 MMbbl/d of legacy, 0.5 MMbbl/d of non-horizontal growth and nearly 1 MMbbl/d of horizontal growth, which was increasing 0.25 MMbbl/d year-over-year since 2011, the analysts said.  Of the horizontal growth, 0.5 MMbbl/d is from the Delaware, 0.35 MMbbl/d is from the Midland and the negligible remainder is from other basins.

The Permian Basin has proven that it has significant inventory, that it can grow and that it can generate “powerful economic returns.” These factors, coupled with its low geopolitical risk, have garnered the attention of the more than 27 integrateds and publicly traded E&Ps with exposure in the basin, the report found.

Bernstein’s own coverage identifies seven public companies with exposure: Apache Corp. (NYSE: APA), Anadarko Petroleum Corp. (NYSE: APC), ConocoPhillips (NYSE: COP), Devon Energy Corp. (NYSE: DVN), Encana Corp. (NYSE: ECA), EOG Resources Inc. (NYSE: EOG) and Noble Energy Inc. (NYSE: NBL).

The Permian owes its steady production levels to its rig count, which has fallen slowly and minimally compared to other plays. Although non-Delaware and non-Midland counts “have hit record lows and in some cases even zeroed out,” key Midland counties to the west “have maintained their share.”

Well productivity isn’t why rigs haven’t fallen as fast in the Permian, as compared with the higher rates in individual wells in the Bakken and Eagle Ford, Bernstein reported. Instead, Permian rigs were kept in the field thanks to growth operators who were hedged, ensuring the cash flow needed to continue high levels of activity and the basin’s potential for growth. 

Lateral lengths, another component in Permian production, experienced “massive year-on-year growth” from 2007 to 2013. But according to recent data, growth is approaching single digits.

In 2009, both Delaware and Midland wells’ laterals were about 3,000 feet. Now, the “Midland Basin has grown to 7,500 feet while the Delaware only 5,500 feet.” The Delaware’s shorter wells result from “checkerboarding,” or railroad land grants’ effect on acreage ownership, and could be remedied by joint ventures and acreage swaps, the analysts said.

The Midland Basin to the east has experienced a plateau in lateral lengths for the last few years, while the Delaware Basin has recently stepped up its pace. The Delaware “has the most to gain in capital efficiency” and “looks like the long-term winner” in projected long-lateral development, according to Bernstein.

At the moment, the Midland appears more valuable, yielding $10,000 to $25,000 per acre, with an average of $13,480/acre last year. Prices in the Delaware are rising from their current average of $6,640/acre.

Meanwhile, “in practice, the equity market appears to place a value of $20,000 to $40,000/acre on the Permian acreage of most operators,” the analysts said.

A Permian E&P company is worth owning, they said, because of its ability “to generate future discounted cash flow significantly in excess of a) its costs, b) its valuation and c) its peers.”

The analysts attributed this notable cash flow to a Permian E&P’s capacity to drill more wells and have wells that both return cash flow quickly and generate greater cash flow than capex.

Top E&Ps operating in the Permian include EOG, which boasts some of the longest laterals and “is improving the fastest in the basin,” according to Bernstein.  On the other end of the spectrum, Anadarko “has the most room for improvement on well cost … well productivity needs to improve at the same time.”

Apache’s acreage position is significant, but the company may reap more benefits if it focuses on core holdings, whereas ConocoPhillips could profit from “upsizing exiting the basin or deploying capital elsewhere,” according to the report.

In all, the Permian Basin “is the last large arena for oil production growth in the U.S,” Bernstein concluded.