North American Gas Markets Now in Deficit
Comment of the Day

September 01 2021

Commentary by Eoin Treacy

North American Gas Markets Now in Deficit

This article from Goehring & Rozencwajg may be of interest to subscribers. Here is a section:

Since their initial development in the early 2000s, the US shale gas fields have completely overwhelmed US gas markets. Between 2007 and 2020, shale production grew by an incredible 68 bcf/d on a starting base of 50 bcf/d. Over that time, the shales represented 150% of total US production growth, with conventional supply declining steadily. Notably, the Marcellus (in Pennsylvania) and associated gas from the Permian (in Texas) were responsible for nearly 70% of that increase. In 2019, our neural network indicated that both plays were in the early stages of resource exhaustion. We predicted both basins would have a hard time growing at the same rate as in prior years and may actually begin to decline.

Our models appear to be correct. Between December 2019 and June 2021, the Marcellus has been flat while the Permian has added only 1.1 bcf/d. To put these figures into perspective, over the eighteen months between June 2018 and December 2019, the Marcellus added 6.5 bcf/d while the Permian added 5.5 bcf/d. In other words, Marcellus growth declined by 98% while Permian growth fell by 80%. While COVID certainly impacted drilling activity, recent production trends have not improved. Year to date, production from the Marcellus and Permian combined is down 250 mmcf/d.

If the shales stop growing, total US production would decline quite quickly. For example, total US dry gas production peaked in December 2019 at 97 bcf/d. As of April (the most recent month with complete data), US supply was down 4.5 bcf/d or nearly 5% to 92.5 bcf/d. Given that preliminary data suggests the shales declined between April and June, it seems almost certain total US dry gas production has continued to decline as well.

Eoin Treacy's view

The shale oil and gas boom transformed the USA’s energy market but also played a significant role in the geopolitical theatre. The biggest idiosyncrasy attached to the market is the constant drilling requirement. Unconventional wells have prolific early production but quickly peak. The only way to ensure production grows or is sustained is to keep drilling new wells. The economics of the sector are capital intense so interest rates, availability of funding and the price of the commodity play a significant role in how many wells are dug.

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