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Unstoppable Shale Revolution Poised For New Record Gas Production

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Naureen Malik, Bloomberg

U.S. natural gas production is poised to reach a record for a fifth year as shale drillers boost efficiency, driving prices toward a low of more than a decade.

Output will rise 3.2 percent in 2015, led by gains at the Marcellus formation, the nation’s biggest shale deposit, according to the Energy Information Administration. Marcellus production will increase 2.8 percent through February after a 21 percent gain in 2014, a year when prices tumbled 32 percent. Producers in Pennsylvania and West Virginia have cut break-even costs by half since 2008, according to Oppenheimer & Co.

Drilling more wells at one site and extending the length of horizontal wells are among the efficiencies that have helped gas companies cope with falling prices. The EIA expects Marcellus to climb to about 20 percent of production in the lower 48 states from about 2 percent in 2007. Cabot Oil & Gas Corp., the biggest Marcellus producer, plans to increase output by at least 20 percent this year.

 “The Marcellus has been a game changer in terms of production, reserve potential, everything,” said Fadel Gheit, a senior energy analyst for Oppenheimer & Co. in New York. “They are not waiting for higher gas prices to bail them out.”

Gas Prices

Natural gas futures fell 2.1 cents to $2.579 per million British thermal units Friday on the New York Mercantile Exchange, the lowest settlement since June 2012. Gas has declined 81 percent from a high in 2008 as production from shale formations increased, touching $1.907 in April 2012, the lowest since 2002.

Break-even prices for Marcellus producers have dropped below $2 per thousand cubic feet ($1.95 per million Btu) from around $4 in 2008, Gheit said in a Feb. 3 interview.

U.S. gas production growth was projected to slow to 1.4 percent last year, the least since a decline in 2005, the EIA said in December 2013. Instead, output jumped 5.6 percent. Efficiency gains at Marcellus producer Range Resources Inc. include plans to increase the length of underground horizontal wells by 36 percent to 6,200 feet (1,890 meters), with a third of the total topping 7,000 feet, according to a Jan. 15 company presentation. Range used drilling efficiencies to cut costs to $2.64 per thousand cubic feet in 2014 from $3.01 in 2012.

Shale Deposits

The company said it’s targeting 20 percent to 25 percent production growth “for many years.”

Southwestern Energy Corp.’s output may rise 28 percent this year as it drills longer wells, increases pipeline capacity and after spending $5.4 billion to acquire shale fields, according to a Dec. 30 company conference call.

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