U.S. Gas Production from Shales Growing Faster than Demand

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--North America's natural gas production grew strongly last year, and is expected to continue growing strongly for the next 20 years, driven by extraction from shale deposits via hydraulic fracturing and horizontal drilling, according to the 64th Annual Statistical Review of World Energy from BP plc (NYSE:BP) (London, England). That comprehensive analysis, released June 10, predicted North American natural gas production will soar over the next two decades. In particular, production from U.S. shale deposits are expected to more than double by 2035.

Click on the images at right to see a chart of BP's data for actual and projected North American gas production, from 1990 to 2035, and a graphic showing growth of North American shale production.

In other words, the U.S. shale gas revolution is still in its early stages, according to BP's venerable statistical report. Over the next 20 years, BP said, "shale gas production is dominated by North America, which currently accounts for nearly all of shale gas supply and (will) account for around three-quarters (of supply) in 2035." BP also predicted shale gas production growth outside North America, mainly in China, will accelerate over the next two decades.

U.S. proved reserves of natural gas increased to 345 trillion cubic feet (Tcf) at yearend 2014, about 2% over 2013's proved reserves of about 339 Tcf, the energy giant said. U.S. proved reserves of gas have risen sharply over the prior two decades, from about 194 Tcf at yearend 2004 and 162 Tcf in 1994, BP observed.

Gas production in the U.S. rose 6.1% last year, to about 25.7 Tcf from 24.3 Tcf in 2013, BP continued. By contrast, U.S. gas production in 2004 totaled about 18.6 Tcf, BP said.

BP's report was one of several recent voices predicting strong growth for U.S. shale gas production. In its most recent Short Term Energy Report (STEO), the U.S. Energy Information Administration (EIA) predicted U.S. gas production would increase by about 4.3 billion cubic feet per day (Bcf/d) this year, to about 80 Bcf/d. That's a 5.7% increase over 2014 production levels. In 2016, the agency forecast production would increase another 1.6 Bcf/d.

"Despite recent declines, natural gas production remains high, and EIA expects continued growth through 2016, with increases in the Lower 48 states expected to more than offset long-term production declines in the Gulf of Mexico," EIA said in the STEO, released July 7. "Increases in drilling efficiency will continue to support growing natural gas production in the forecast, despite relatively low natural gas prices. Most of the growth is expected to come from the Marcellus Shale, as the backlog of uncompleted wells is reduced and new pipelines come online to deliver Marcellus natural gas to markets in the Northeast."

"Increases in domestic natural gas production are expected to reduce demand for natural gas imports from Canada and to support growth in exports to Mexico," the agency continued. "EIA expects natural gas exports to Mexico, particularly from the Eagle Ford Shale in South Texas, to increase because of growing demand from Mexico's electric power sector, coupled with flat Mexican natural gas production."

A few months earlier, in its Annual Energy Outlook, EIA predicted the U.S. would become a net natural gas exporter by yearend 2017. "The U.S. does indeed become a net exporter of natural gas, and that's fairly soon in this outlook--in the year 2017," EIA Administrator Adam Sieminski said in releasing the AEO this spring. Natural gas exports could range between 3 Tcf and 13.1 Tcf by 2040, depending on various price assumptions for crude oil and gas, EIA said.

"The key takeaway here is that natural gas prices are going to be very dependent on what assumptions you make about crude oil prices," Sieminski said. In EIA's Reference case, the Henry Hub natural gas spot price rises from about $3 now to about $4.88 in 2020. Sieminski said increased demand in both domestic and overseas markets will stimulate more production, but at a somewhat higher price.

Surging gas production has exceeded demand growth, causing a lot of gas to go into storage and keeping prices low. One industry trade group, the Natural Gas Supply Association of America (NGSA) (Washington, D.C.), said that even the predicted strong growth in demand from the electricity sector will not be enough to outstrip production gains.

"When NGSA weighed all the different factors, the picture that emerged for the upcoming summer is one of remarkable growth, both in supply and in demand," NGSA Chairman Bill Green said last month. "Even with record-setting demand expected, production is also projected to set summer records. With more than enough supply to meet demand, we anticipate downward pressure on prices compared to last summer."

"Our expectation for downward price pressure is based on a forecast for record production that exceeds even the record level of demand expected to occur this summer," NGSA said. The organization does not predict prices.

"The shale revolution has ushered in a remarkable era, as evidenced by dramatic growth in production over the last eight years," Green said. "This summer's supply is expected to be even more robust than last year, because of drilling efficiencies and new infrastructure coming online to move natural gas out of producing shale areas."

"The important takeaway is the strength and responsiveness of natural gas supply," the NGSA chairman continued. "Since the onset of shale production on a large scale, we've had year after year of stability for consumers."

Many analysts note that projected exports of liquefied natural gas (LNG) will boost demand in the near future, but not nearly enough to rebalance the domestic gas market.

"Continued growth in U.S. shale production is good news to almost everyone except gas producers," said Jesus Davis, Industrial Info's vice president of research for Oil & Gas Production, Pipelines and Terminals. "Demand for gas continues to grow from industries like petrochemicals and electric utilities, but it has not outstripped production growth. Some producers are playing a game of chicken with other producers: They keep producing while waiting for the other guy to blink. But no one's blinking. In some ways, producers are their own worst enemies."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.