American Oil & Gas Reporter - Outlook Q&A: 2017 Trending Toward Upturn

January 20, 2017 – American Oil & Gas Reporter

Outlook Q&A: 2017 Trending Toward Upturn

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Q: EIA estimated 20 years ago that the nation had 167 trillion cubic feet of proved natural gas reserves and 1.156 quadrillion cubic feet in technically recoverable resources. Two decades’ worth of consumption later, EIA puts those numbers at 324 Tcf of proved reserves and nearly 2.300 quadrillion of technically recoverable resources, thanks largely to shales. The rise of U.S. shale gas has been nothing short of remarkable, but what does the future hold for gas shale plays?

BRAZIEL: The future of the shale revolution is about demand, both in the United States and exports in the form of liquefied natural gas to overseas markets and pipeline deliveries to Mexico. U.S. producers have proven they can meet almost any rational level of gas demand, if the price is right. So much of shale’s future will turn on whether demand will support a price high enough to drive continued increases in drilling activity.

Three factors will be the primary determinants of this demand. The first is the U.S. regulatory environment, running the gamut from production rules to pipeline transportation and constraints on natural gas end-use markets. The other two factors–the health of the global economy, and the price of crude oil–will influence demand for U.S. LNG export volumes in overseas markets, and therefore, the likelihood of a second wave of LNG export facilities. If the demand is there, the recoverable resources are available for U.S. producers to meet that demand.

Q: For the first time since 2005, year-to-year U.S. natural gas production was down in 2016, averaging about 1.5 billion cubic feet a day less than in 2015. The Marcellus/Utica has been the primary contributor to increased domestic production, but Appalachian output stalled in 2016 with low commodity prices. Will Marcellus/Utica production resume growing in 2017? Will increased productivities per well and per rig continue? What about the other major shale gas plays? What do you envision in these basins over the next 12-18 months?

BRAZIEL: It is quite likely that Marcellus/Utica production will resume its upward trajectory, primarily because of pipeline capacity out of the region being added over the next couple years. Local prices for Appalachian gas have been considerably below prices in most of the rest of North America for the past few years, mostly because of pipeline capacity constraints. As these constraints are relieved, producers will enjoy higher net backs and more attractive drilling economics, encouraging them to drill more wells. The obvious result will be production growth….