Oil & Gas Production Drops as Prices Remain Low in 2016, LNG Producers Learn to Think Small

---

Researched by Industrial Info Resources (Sugar Land, Texas)--As the price of oil continues to stay low at just under $31 a barrel, companies are evaluating what to do with drilled but uncompleted wells. Most of the wells, which can range from the hundreds to the thousands, are being left alone to lie dormant during 2016, while a fraction of other wells might be brought on line by companies that are strapped for cash, any cash, to pay off overwhelming and overdue debts.

Some companies have obligations for supplies, while others need to maintain their leases, which require a certain amount of production to take place. Companies want to at least keep oil production flat while inventories are sold, but an overall drop in production could very well be seen for 2016 over 2015.


Reported oil rig counts for the U.S. last week was around 465, according to Baker Hughes Incorporated (NYSE:BHI) (Houston, Texas). In 2015, the rig count was down to 700-750, which was a 50% drop from 2014's rig count. Rig counts in the field will continue to drop, and they are currently less than a third of what they were in 2014. With rig counts down, no new wells being planned, and previously drilled wells not being moved to completion, there will be a drop in production even with more efficient means of reaching and producing oil and gas. The U.S. Energy Information Administration (EIA) released a report which had oil production at 9.2 million barrels per day (BBL/d) in the third week of January, which reflects no change in production since the beginning of the year. Predictions are that it might fall by at least another 500,000 BBL/d.

This will affect the midstream business, especially new processing facilities and expansion plans that are put on-hold or cancelled. Most of the larger liquefied natural gas (LNG) export projects that did not have a previous tolling agreement have been deferred to 2017 for a final investment decision, and others have been cancelled all together. Conversely, the micro-LNG facilities that were being planned are actually moving forward, save for some. For related information, see December 14, 2015, article - As LNG Boom Creates Supply Glut, Many Turn to 'Micro LNG' for Small-Scale Solutions.

Ferus Incorporated (Calgary, Alberta) is still feeling optimistic as LNG projects planned for Edmonton and Elmworth, Alberta, are still moving forward. These facilities are expected to produce approximately 100,000 gallons and 50,000 gallons per day of LNG, respectively. The Elmworth facility already produces 50,000 gallons per day of LNG, and the expansion will increase the total site capacity to 100,000 gallons per day. This capacity will largely be sold to companies with fleet vehicles that have been converted to run on LNG.

Ferus is also moving forward with its plans for a larger production yield in Jacksonville, Florida. It intends to sell to marine vessels as well as fleet vehicles and locomotives. The Jacksonville site is expected to produce a total of 900,000 gallons per day from three planned production trains (300,000 gallons per day each). Ferus has teamed up with Clean Energy Fuels Corporation (NASDAQ:CLNE) (Newport Beach, California) and created Eagle LNG Partners for this endeavor.

"While prices are down, there are other industries that look to take advantage of this climate," said Chris Easley research manager of North American Oil & Gas for Industrial Info. "Power producers currently using natural gas (or converting from coal to natural gas) and chemical production plants as well freight companies all have an interest in the current low pricing for the fuel. You're not going to see the multi-billion dollar GTL [gas-to-liquids] plants, that have to compete with refineries, be approved and built during this time, but spending $50 million to $100 million is not that far-fetched for producers that have contracts with utility or freight companies."
br> Easley continued: "As the dust settles and the world catches up to its development needs, oil and gas pricing will remain low. This, inevitably, will allow for other industries to flourish, as there are large supplies and low pricing."

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. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.