The breathtaking collapse in crude oil prices this past fall, which has seen benchmark prices drop from over $110 a barrel last year to under $50 this past week, has had little effect on U.S. natural gas production, which continues to set records.
According to data from the Energy Information Administration (EIA), U.S. dry natural gas production for October hit 2,239 Bcf, or 72.2 Bcf/d. This is not only the highest level ever but also the eighth consecutive month in which daily production has set a new record. It represents a 0.5 Bcf/d increase over September and a 6.8% increase over October 2013.
Data from Bentek indicated that December levels would be even higher, at 72.8 Bcf/d, with production hitting a one-day record high of 73.6 Bcf/d on December 20.
Bentek estimated that average production for 2014 was approximately 68.4 Bcf/d, which would also be another record. The booming gains are being driven primarily by production in the Northeast, according to Bentek data, as well as continued growth in liquids-rich basins.
The other driver, according to the EIA, has been booming demand. Preliminary EIA consumption for October 2014 was 1,940 Bcf or 62.6 Bcf/day, a record for October and a 3.9% increase from October 2013. The increased demand is coming almost entirely from the power sector, which saw October deliveries shoot up 10% from last year. Demand from residential, commercial, and industrial sources was down or even with last October, according to the EIA.
The demand from power burn appears unlikely to slacken any time soon. According to a report from SNL Energy, utility-scale capacity additions for 2014 were once again led by gas, as major new plants came online in Texas, Utah, and Florida. Of the 15,450 MW added last year, just over half, at 7,902 MW, was gas-fired, and almost entirely combined cycle. In addition, much of that capacity was built to replace retiring coal plants.
Whether the collapsing oil market puts the brakes on gas production, particularly shale gas, remains to be seen. Recent bearish statements from government officials in Saudi Arabia suggest the nation is not preparing to scale back oil production despite prices in the $40/barrel range, which has analysts believing the bottom is yet to be reached. Shale industry experts say that prices below $50/barrel put all but a few U.S. shale oil plays below their break-even point. A significant drop in shale oil production could cut into associated gas production, though this would still leave substantial shut-in shale gas production in the northeast untouched.
—Thomas W. Overton, JD, POWER associate editor