From the New York-based Marcellus Drilling News:
Yesterday the U.S. Energy Information Administration (EIA) released their monthly Short-Term Energy Outlook (STEO), which includes the outlook for natural gas. EIA has some of the best and brightest that crunch the numbers, so when they issue their reports, people pay attention. EIA reports are not exactly a crystal ball to predict the future—but they’re darned close.
The Marcellus Shale of Pennsylvania and West Virginia is mentioned prominently in this update, including its predicted role in boosting overall natural gas production this year. Below is the natural gas portion of the STEO, with predictions for prices, production and consumption in 2013:
U.S. Natural Gas Consumption
EIA expects that natural gas consumption will average 69.7 billion cubic feet per day (Bcf/d) in 2013 and 69.4 Bcf/d in 2014. While total consumption is relatively unchanged from 2012, the makeup of consumption changes. Because of a warm winter last year, 2012 residential and commercial consumption was very low, and the hot summer (as well as relatively low natural gas prices) led to record-high use of natural gas for power generation. Forecasts for closer-to-normal temperatures in 2013 and 2014 will lead to increases in natural gas used for residential and commercial space heating. These increases are offset by declines in natural gas for power generation, as summer temperatures are expected to be closer to normal, meaning cooler than they were in 2012.
Despite projected declines in electric power consumption from 2012 levels, consumption of natural gas for electric power generation remains high by historical standards and reflects a structural shift toward using more natural gas for power generation. While the shift toward more natural gas for power generation has been most evident in the Southeast, other major consuming areas have also increased natural gas consumption. Increased pipeline flows in New England during the summer months, for example, represent an increasing reliance on natural gas for power generation.
U.S. Natural Gas Production and Imports
This month’s STEO expects continued growth in natural gas production, driven largely by onshore production in shale areas. In particular, production in the Marcellus Shale areas of Pennsylvania and West Virginia is expected to continue rising, as recently drilled wells become operational. Despite relatively low natural gas prices, Pennsylvania drilling continues at a strong pace as producers target combination oil-and-gas wells. Production has been rising despite large decreases in the natural gas rig count over the past year. According to Baker Hughes, the natural gas rig count was 431 as of December 28, 2012, compared with 811 at the start of 2012. The oil rig count has also declined in recent months (oil rigs often produce associated natural gas), although declines have been much smaller than declines in the natural gas rig count. The declines in rig counts, coupled with continued production growth, suggest increases in rig efficiency, which will maintain production levels going forward.
This month’s STEO expects that total marketed production will increase from 69.2 Bcf/d in 2012 to 69.8 Bcf/d in 2013, and drop slightly to 69.5 Bcf/d in 2014. EIA expects growth in Lower 48 onshore production will continue through 2014, and will be offset by Gulf of Mexico declines next year.
Domestic supply continues to displace pipeline imports from Canada and liquefied natural gas (LNG) imports. EIA expects pipeline gross imports will stay mostly flat in 2013. Projected pipeline imports drop by 0.4 Bcf/d (4.5 percent) in 2014. Gross exports to Mexico have grown substantially since 2010, but EIA expects exports will stay flat in 2013 and increase by 0.2 Bcf/d (5.5 percent) the following year. LNG imports are expected to remain at minimal levels of less than 0.5 Bcf/d in both 2013 and 2014. Exports mainly arrive at the Elba Island terminal in Georgia and the Everett terminal in New England, either to fulfill long-term contract obligations or to take advantage of temporarily high local prices due to cold snaps and disruptions. Higher prices for LNG elsewhere in the world have made the United States a market of last resort for LNG suppliers.
U.S. Natural Gas Inventories
Inventories of working natural gas in storage remain at high levels, after setting an all-time weekly record in November 2012. As of December 28, working gas stocks totaled 3,517 Bcf, which is 23 Bcf greater than the same time in 2011 and 389 Bcf greater than the previous five-year (2007-11) average, according to EIA’s Weekly Natural Gas Storage Report. So far this winter, withdrawals have been limited, mainly because of warmer-than-normal temperatures in December. Five-year average weekly withdrawals in December are generally well above 100 billion cubic feet, but that occurred only during the last week of the month. For the week ending December 7, 2012, working gas inventories posted a net injection of 2 Bcf. Only two other net injections have been reported in the month of December: one in 2005 and the other time in 1998.
U.S. Natural Gas Prices
Natural gas spot prices averaged $3.34 per MMBtu at the Henry Hub in December 2012, down $0.20 per MMBtu from the November 2012 average and $0.17 per MMBtu more than the December 2011 average. The warm December partially led to the month-over-month decline in prices. Through 2014, EIA expects prices will gradually rise but still remain relatively low. EIA expects the Henry Hub price will average $3.74 per MMBtu in 2013 (compared to $2.75 per MMBtu in 2012) and $3.90 per MMBtu in 2014. Natural gas futures prices for April 2013 delivery (for the five-day period ending January 3, 2013) averaged $3.38 per MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95-percent confidence interval for April 2013 contracts at $2.42 per MMBtu and $4.73 per MMBtu, respectively. At this time a year ago, the natural gas futures contract for April 2012 averaged $3.11 per MMBtu and the corresponding lower and upper limits of the 95-percent confidence interval were $2.15 per MMBtu and $4.49 per MMBtu.
*Energy Information Administration (Jan 8, 2013) – Short Term Energy Outlook: Natural Gas
Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.
Rig Count Interactive Map by Baker Hughes, an energy services company.
Shale Sheet Fracking, a Youngstown Vindicator blog.
The Ohio Environmental Council, a statewide eco-group based in Columbus.
Earthjustice, a national eco-group.
People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.
Concerned Citizens of Medina County, a grass-roots group.
No Frack Ohio, a Columbus-based grass-roots group.
Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.
Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.
Allegheny Front, environmental public radio for Western Pennsylvania.