Natural Gas Supply Update – 10/1/08 (with data for July)


Here’s is the U.S. Lower 48 (ex Alaska) natural gas production monthly slide show.  In a nutshell, production growth accelerated to about 5.1 Bcfgpd versus year ago levels, up from 4.5 Bcfgpd last month.  Rig rates are still elevated but have backed off for two weeks now although some of that may be attributable to hurricane issues. CHK and HK announced capex reductions and rig lay downs since the last monthly checkup on production. Without constant drilling the rapid decline rates indicative of the shale plays would quickly result in decelerating growth. These kind of non-stock macro pieces are always archived on the Natural Gas Tab.


U.S. Lower 48 Production Continues To Track Up 5 Bcfgpd On A Year Over Year Basis.

Here’s The Production Pie For July. Just so you know where all the natural gas comes from. Texas is a third and then there's all the rest.



Here are the large moving pieces:

1) The Biggest Grower And Biggest Piece Of The Pie Is Still Texas. The Barnett should decelerate into year end and early next year as the rig count comes off. The most active drillers in the play including CHK should be transitioning rigs to higher return areas now.



2) Other States’ Production Growth Continues - These are all the little states that produce gas but which are currently deemed too small to get their own item line in the EIA’s score book. States like Arkansas, with the Fayetteville Shale are helping to move this once stagnant category higher. Note the slope of the line here for the last 24 months...still going ballistic.

3) Wyoming. Huge grower but has been bumping up against capacity constraints. Debottlenecking of the area is well underway; expect growth to continue here as long as capex remains in place.

4) Gulf of Mexico. Never recovered from the storm season of 2005 and now seemingly to grow despite big lumpy volume additions like the 1 Bcfgpd Independence hub (that little lump on the far right of the charts).

5) Oklahoma : Mid-continent prices have been pretty beat up late summer/early Fall so I would expect growth here to come off as curtailments and slowdowns are implemented. Good assets but either service and operating costs need to fall too or differentials to Henry Hub need to shrink.


6) Louisiana starting to look alive but the fear of a fast ramp exceeds the reality. This is where traders are expecting the glut of gas to come from next year. Yet when you look at the most active players in the play, those who have announced drilling programs for 2009 and 2010, the amount of gas they expect to produce here next year is only 2 to 3 Bcfgpd. While the Haynesville will likely be bigger than the Barnett’s eventual 6 Bcfgpd, that dream is many years away.



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