Sooner or Later? – The Search For Signs of A Natural Gas Production Slowdown

The CME/NYMEX Henry Hub natural gas futures price averaged $2.64/MMBtu in September, the lowest level for any September since 2001, and it continues to hover at a similar low for October so far. Rig counts are down nearly 60% since December 2014. The market is on high alert for the first sign of production declines that might encourage higher prices – believing this to be a matter of sooner or later. Yet natural gas production has been hitting all-time records. Today we look at monthly natural gas production data from the Energy Information Administration (EIA).

Last week in “What Goes Up,” we outlined reports from the EIA tracking crude oil production. Each of these reports provides value in terms of market data but do not provide a clear, unambiguous picture of what is happening to supply. Rather we use the data in combination to fill the knowledge gaps, taking care to understand the methodology and risks associated with each dataset. We found that lagged wellhead production data from each state presented a risk to EIA estimates of crude volumes that the agency is now overcoming with direct surveys of producers. We have also noted the increasingly indirect relationship between production and drilling activity that is blurred by productivity improvements as well as the number of wells that are drilled but not completed (see Incomplete), and the wells previously drilled that are now being completed. Today we'll look at comparative EIA data for natural gas production.

State of the Energy Markets, October 28, 2015

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What is going on in today’s markets for natural gas, NGLs and crude oil, why it is happening, and what is likely to happen next?

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As with crude oil, the EIA publishes several reports for tracking natural gas production. The first report we'll look at is the EIA Natural Gas Monthly (NGM). This report combines data from state agencies, third-party vendors and, as of this year, a sample survey of producers across 15 producing states to estimate natural gas production totals for each month. These estimates are regarded by the industry as arguably the most historically complete and reliable source of gas production data. The downside is that the report is published on a two-month lag and some of the numbers are effectively lagged for longer than that since state agency data can be delayed by a few months to more than a year depending on the state. As such, this dataset has been susceptible to revisions going back a year or more as final state-level data becomes available.

The latest NGM was released last Wednesday (Sept. 30), showing EIA's estimate for July 2015 for the first time while also revising/finalizing historical data going as far back as 2013 (blue line in Figure 1). 

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