EIA -

EIA expects near-term decline in natural gas production in major shale regions

August 26, 2015

 

 

Natural gas production across all major shale regions in EIA's Drilling Productivity Report
(DPR) is projected to decrease for the first time in September. Production from these seven shale
regions reached a high in May at 45.6 billion cubic feet per day (Bcf/d) and is expected to
decline to 44.9 Bcf/d in September. In each region, production from new wells is not large
enough to offset production declines from existing, legacy wells.


The DPR provides a month-ahead forecast of natural gas and crude oil production for the seven
most significant shale formations in the United States. In order to estimate total natural gas
production within a DPR region in a given month, production from both new wells and legacy
wells must be taken into account. New-well production is estimated by multiplying estimated rig
productivity by the number of rigs operating in the region, lagged by two months. Production
from new wells is then compared to the anticipated production declines from legacy wells, which
are typically based on well depletion rates, to estimate net production.


In any given month, new-well production depends on the number of drilling rigs and the
productivity of those rigs and the wells added through their use. As rig counts fall, increases in
rig productivity are necessary not only to compensate for the reduced rig total, but also for rising
levels of legacy-well declines. Given the substantial drop in rig counts since the fourth quarter of
2014 in each of the DPR regions and growing declines in production from legacy wells,
productivity increases are less able to completely offset lower rig counts and legacy-well
declines.

 

 

The Utica region in eastern Ohio is the only DPR region expected to show production increases
in June, July, and August. Production declines from legacy wells in the Utica are estimated to
total 55.6 million cubic feet per day (MMcf/d) in September. Partially countering this decline is
expected production from new wells of 52.2 MMcf/d in September. New-well natural gas
production per rig is estimated to be about 7 MMcf/d, an increase of 47% from September 2014.
Seven rigs were drilling in the Utica in July (the most recent data available). Multiplying the
seven rigs by the estimated new-well gas production per rig yields the total new-well production
estimate for September. Because this value is lower than the decline from legacy wells, total
production is expected to fall by 3.4 MMcf/d.


A year ago, the higher number of rigs operating in the Utica meant that new-well production
more than offset the 26.5 MMcf/d in legacy-well declines, resulting in a net production increase
of 116.5 MMcf/d. Since then, falling rig counts and increasing legacy-well declines mean the
increase in Utica new-well productivity is insufficient to overcome legacy-well production
declines.


Several external factors could affect the estimates, such as bad weather, shut-ins based on
environmental or economic issues, variations in the quality and frequency of state production
data, and infrastructure constraints. These factors are not accounted for in the DPR. For example,
on August 1, the Rockies Express Pipeline started to deliver 1.8 Bcf/d of Appalachian natural gas
production west on its existing mainline as part of the Zone 3 East-to-West Project. This increase
in takeaway capacity may encourage increased production from regions such as the Marcellus
and Utica.


The DPR provides a very near-term forecast in specific plays based on the most current
information. Longer term outlooks that include play-level detail, such as the Annual Energy
Outlook, reflect resource and technology assumptions and projected prices and often move in
different directions than the DPR, which reflects short-term factors.


Principal contributor: Grant Nülle


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