EIA: US natural gas production to grow on high Permian well productivity, crude oil prices

Nov. 7, 2023

In its latest Short-Term Energy Outlook, the US Energy Information Administration (EIA) projects that natural gas production in the Lower 48 states of the US will grow by 5% (5 bcfd) in 2023 and 2% (1.8 bcfd) in 2024. The primary driver of this forecasted growth is the Permian basin region, where EIA expects that improved well-level productivity and higher crude oil prices will spur drilling activity that will increase natural gas production.

The Permian basin rcurrently accounts for a quarter of all marketed natural gas production in the Lower 48. EIA forecasts natural gas production in the region will increase by 11% (2.2 bcfd) in 2023 and 6% (1.4 bcfd) in 2024.

Most natural gas production in the Permian is associated natural gas production from oil wells. As a result, producers typically respond to changes in the crude oil price when planning exploration and production activities, including deciding whether add or remove rigs.

“Advances in hydraulic fracturing and horizontal drilling techniques have improved US oil and natural gas well productivity. The length of a well’s horizontal section [...] has increased substantially [...] from an average of less than 4,000 ft in 2010 to over 10,000 ft in 2022,” EIA said.

EIA evaluates natural gas well productivity based on a well’s monthly average natural gas output. “In its first full month of operation, a well typically produces the most natural gas, followed by declining output in subsequent months. Permian region wells that have started operations so far in 2023 have produced on average 1.85 bcf of natural gas during their first full month of operations,” EIA said. Average first month production for Permian wells has risen, averaging 1.83 bcf in 2022 compared with 1.3 bcf in 2017, the agency continued.

So far in 2023, natural gas production has increased in the Permian even as the rig count decreased. According to Baker Hughes, 322 rigs were operating in the region as of Sept. 15, 31 fewer than at the start of the year.

EIA forecasts the price of WTI crude oil will increase in 2024, averaging $83.22/bbl compared with $79.65/bbl in 2023, partly because of Saudi Arabia’s extended crude oil production cuts. EIA expects the higher crude oil prices will incentivize operators to produce more oil and, as a result, more natural gas in the Permian basin region.