Record high production with prices still rangebound! As of year-end 2017, Lower-48 natural gas production was at an all-time high — 77 Bcf/d and rising. NGL production from gas processing was at 3.7 MMb/d, the highest since EIA started recording the numbers. And U.S. crude oil output stood at 9.8 MMb/d, within spitting distance of the 10 MMb/d record set back in October/November 1970. All this with the price of WTI crude oil no more than 9% higher than it was this time last year, and natural gas prices 20% below year-end 2016. Yup, the dogs are out. Productivity is the culprit: longer laterals, super-intense completions, manufacturing-process pad drilling — the list goes on. Clearly the U.S. can’t absorb all this production growth, so the export market must be the answer. Or is it? Are we really that confident that world markets will make room for still more U.S. hydrocarbons? If not, what does it mean for prices? And ultimately, how will these prices impact U.S. producers? These are big questions, and with this much turmoil in the market it is impossible to know what will happen. Impossible? Nah. No mere market turmoil will dissuade RBN from sticking our collective necks out to peer into our crystal ball one more time to see what 2018 holds.
2017 Track Record
Each year before we get to our new Prognostications, we find it instructive (and sometimes sobering) to look back at how we did the previous year. In other words, to check our work. This time around we did that in Rearviewmirror, posted last Friday, December 29. Overall, we think we did pretty well, with accurate predictions for the range of crude prices, rig productivity, producer strategies, Permian natural gas basis, the frac spread and ethane rejection. We were a bit less prescient regarding gas prices and crude production. For more on our outlook for 2017, check out The Top 10 RBN Energy Prognostications for 2017.
And Now 2018
According to the Chinese calendar, 2015 was “Year of The Goat” and that year certainly lived up to its name. The Goat was followed in 2016 by “Year of the Monkey” and in 2017 by the “Year of The Rooster.” Cock-a-doodle-do! Again, pretty good descriptions of energy markets in those years. So now in 2018 we face “Year of the Dog.” While many RBNers are dog people, we’ve got to admit that at first blush a dog year doesn’t sound all that inviting. So let’s give it a positive spin. As our title proclaims, the dogs are out! Production is growing and unless something goes awry with OPEC or the world economy, the future looks bright. But as our 2018 graphic implies, it is going to be dog-eat-dog competition out there.