Gas Rally at Risk | Russell T. Rudy Energy LLC
According to a recent article in “World Oil”, money managers saw the all-time high level of natural gas supplies as the high water mark. Encouraged by falling pipeline shipments and rig counts, increasing demand via exports and fuel switching from coal, and meteorologists’ predictions of a hot summer, speculators jumped on the gas band wagon. Prices responded favorably, but market fundamentals, not speculation, will determine for how long.
The gas bulls seem to discount the importance of increasing efficiency, oil prices, expanded pipeline capacity, and the role of shale. Natural gas operators are learning how to increase production with minimal incremental investment. Drilling multiple wells from the same location, and longer laterals on horizontal wells, have enabled producers to increase output in spite of falling rig counts. Also, as prices firm, it becomes economically viable to complete wells in the “fraclog” (the inventory of drilled but uncompleted wells).
Oil prices have also contributed to increased gas production. The recent improvement in oil prices has resulted in increased oil production. Casinghead gas (or gas produced as a by-product of oil production) volumes have increased, contributing to total supply.
Some gas gathering pipeline projects have been completed ahead of schedule, which is enabling additional wells to come on line and new wells to produce at greater rates.
Last, but not least, shale reservoirs are proving more prolific than many had thought. Last year natural gas production reached a new annual record for the fifth straight year, and two thirds of this was attributable to shale. The Marcellus in Pennsylvania, Ohio and West Virginia has been especially influential by virtue of its proximity to the northeastern market and the sheer volume of its reserves.
Mark Hanson, an equity analyst at Morningstar Inc., summed it up well: “Never underestimate the Marcellus. Hypothetically, if gas goes to $3.50 tomorrow, the Marcellus becomes an insanely attractive play. It would only take 15 or 20 more rigs to ramp up production in a meaningful way.”
To read the article in its entirety, please go to http://www.worldoil.com/news/2016/5/10/stubborn-natural-gas-supply-imperils-best-us-rally-in-14-years .
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
