December 2014 – Energy Metro Desk
Production Trends
By: Rusty Braziel
Until recently things were good in the oil patch. From 2010 until Halloween 2014, the price of crude oil averaged $93/bbl. Crude oil producers drilling in the shale plays could make a lot of money at $93/ bbl crude, and they did. Gas prices may have been in the doghouse relatively speak- ing, averaging less than $4/MMbtu over the same period of time. But no problem for most producers. Everybody has been drilling for crude or they have been going for rich gas – that comes along with natural gas liquids (NGL). Either way was good for gas production growth. The wells yielded more natural gas in the form of associated gas from the crude wells. And more gas came from processing plants after extraction of NGLs. In essence, a lot of gas has been a byproduct of crude oil and NGL production.
Not that there has been anything wrong with the gas byproduct status. Over the fi years since 2010, lower-48 natural gas production is up 17 Bcf/d, or about 30 percent. That is a lot of new sup- ply. And somehow, all of that gas found its way to a market and was consumed. Those soft prices stimulated enough demand to soak up most of that gas supply, with lower imports the other variable balancing out supply and demand.
But as we look forward to 2015, the world has changed. As of this submit- tal, crude oil prices are wallowing in the $50-$60/bbl range. West Texas Inter- mediate crude oil is down by more than 50 percent since June 2014. That is a problem for US producers – a big problem. NGL prices have ratcheted down right along with crude prices. With crude oil and NGL prices that low, the moneymaking gravy train that crude oil producers have enjoyed for the past five years is kaput. And as producers dial back drilling for crude and wet gas, production of the byproduct natural gas will sink right along with the liquid hydrocarbons. For a litany of reasons, including drilling commitments and mineral lease arrangements, it will take a while for crude oil production declines to materialize, but at these prices it is eventually going to get ugly.
