Thursday, December 29, 2011

October Natural Gas Production Sets New Record

October was another record-setting month for the world's largest natural gas producer, as the U.S. produced all-time record amounts of both gross withdrawals and dry production (consumer-grade gas), according to new data released today by the Energy Information Administration (see chart above).  The record-setting gross volume in October (2.48 trillion cubic feet) was above its year-earlier level by 6.4%; and the all-time high for monthly dry gas production was 7.6% above last October, and surpassed two trillion cubic feet for the first month ever.  

Over the last five years as unconventional shale gas has become increasingly more available due to advanced extraction techniques (fracking and horizontal drilling), gross withdrawals of natural gas have increased by one-third and dry gas has increased by more than 42%.  Welcome to America's new age of energy abundance with enough natural gas to last well into the 22nd century. 


At 12/31/2011 1:14 PM, Blogger VangelV said...

Maybe the government is mis-reporting the output, and artificially manipulating the data, like they do for inflation?

Nice diversion Mark. You are looking at the production data and assume that the trend is sustainable. But I care about the actual profitability because that is how I make my living. When I look at the producers I see a lot of trouble. I see Aubrey McClendon at Chesapeake, the man who hyped shale gas more than anyone else, tell shareholders that the company is transitioning away from gas to liquids because the prices are too low. I see producers sell off land packages because they can't get access to financing as they used to. I hear a lot of talk on conference calls about funding gaps and negative cash flows.

Please explain to us how we can have production increases continue when depletion rates are running at 75
5-90% per year and wells cost $5 million to drill when prices for the commodity are collapsing? Keep in mind that the losses are manageable for some of the producers because they hedged at a time when prices were significantly higher.

Why is it that you can't see the parallels to the internet bubble in the 1990s when everyone was ignoring the negative cash flows as they were anticipating that they could be monetized later? The shale gas producers have drilled off the best areas and still can't make a buck for their shareholders. If there is a contraction, 90% of them will be bankrupt and the boom towns that you are hyping will take a huge beating as future prospects dim. Even if demand holds up future drilling will be in non-core areas that can't yield as much gas. That would mean that even more drilling will be needed just to keep production flat. And that is unlikely to happen.

My prediction is that the shale areas that you are now hyping will go the same way as Montana did. Some prolific wells will make a few people rich while most will wind up losing money. Production will rise for each area until a peak is reached. From there the production will trend down as producers work as hard as they can to limit the capital loss.

At 12/31/2011 1:20 PM, Blogger Mark J. Perry said...

I'm merely reporting the monthly production for October, which was another all-time record high. Maybe some producers are losing money and some are making money and some are breaking even, but that doesn't change the fact that natural gas production was at an all-time high in October.

If producers are losing money, they will exit the industry, less gas will be produced, there will be less competition, and prices will rise until firms are making zero economic profits. Not to worry. It's a "natural" process.


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