Fourth quarter gas production could be lower than market suggests

By the OGJ Online Staff

HOUSTON, Dec. 18 -- Fourth quarter estimates of natural gas production could be overly optimistic, lending support to US gas prices next year, even if demand doesn't rebound quickly, financial analysts said Monday.

Raymond James & Associates Inc. projected fourth quarter production could be down as much as 2%, compared to the third quarter. The current market suggest expectations of about a 1.5% decline, analysts said.

Raymond James pointed to the quick decline in drilling, voluntary curtailments due to low gas prices in October, mandatory production curtailments by the pipelines, and yearend tie-in delays associated with tax payments as reasons for another decline in production.

Producers, especially independent oil and gas operators, have become more sensitive to short-term commodity price cycles. When prices fall, the independents are the first to scale back activity. Integrated companies that target larger projects are not as sensitive to short-term price swings, noted Raymond James.

Meanwhile, pipeline companies are forcing producers to limit production because of high pressure in the transportation and storage system.

Raymond James said its forecast is also supported by a similar situation in the third quarter. With production already declining in the third quarter, the analysts said it is "highly unlikely" that producers would be able to increase volume in the fourth quarter after such a steep decline in third quarter activity.

Integrated producers overestimated third quarter production by about 1.8%.

The US Energy Information Administration said low current prices would discourage suppliers from withdrawing gas from storage to sell at a loss when relatively cheap gas is available on the spot market. Despite a warm fall, the government agency said suppliers continue to expect a colder-than-normal winter to cause increasing prices in January.

EIA said the Henry Hub spot price declined through most of the week, but closed at $2.41/MMBtu Dec. 14, up 30¢ over the previous Friday. The price of the futures contract for January delivery at the Henry Hub settled at $2.85/MMBtu, up nearly 28¢ over the previous Friday's price. The futures price for gas for all months in 2002 presently tops $2.50/MMBtu.

At 22 bcf, withdrawals from storage were again small relative to historical averages, EIA said. The agency said the pattern of relatively small net withdrawals from storage likely will continue as the basis differential between the spot price and the near-month futures contract price continues to be positive and relatively significant.

Related Articles

Statoil farms out 15% interest in block offshore Angola

04/03/2014 Statoil ASA has agreed to farm out a 15% interest in Block 39 of the Kwanza presalt basin offshore Angola to WRG Angola Block 39 Ltd. (WRG). The de...

WoodMac: Bakken drilling, completion capex to top $15 billion in 2014

04/02/2014 Oil and gas industry analyst Wood Mackenzie Ltd. forecasts that operators in the Bakken shale will invest more than $15 billion on drilling and com...

Moody’s: Marcellus shale gas producers to benefit most in US

04/01/2014 Natural gas producers in the Marcellus shale will benefit more than producers elsewhere in the US because of many favorable circumstances, even if ...

Roc farms in to PSC offshore Malaysia

04/01/2014 Fresh from its sale of the Basker-Manta-Gummy (BMG) fields in Bass Strait, Roc Oil Co. Ltd. has farmed in to a production-sharing contract offshore...

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected