EIA Expects Natural Gas Production to Increase

Despite declining rig counts, the federal Energy Information Administration (EIA) forecasts continued growth in natural gas production over the next two years. Previously, a common metric for estimating the production of natural gas was based on the number of gas-oriented drilling rigs in a particular region; however, in recent years, natural gas production has steadily increased, while the number of active rigs characterized as targeting natural gas has fallen dramatically.

According to the EIA, there are several factors that have contributed to the breakdown of traditional methods of using rig counts to estimate natural gas production. Firstly, with the development of shale resources, there is an increased integration of oil and gas production, and natural gas is often produced from rigs that are targeting oil. Secondly, there have been increases in drilling efficiency – or the number of wells drilled per rig each month.

They also report that there is a backlog of wells that have been drilled but not yet completed. This acts as a cushion for well additions, offsetting the more immediate decreases in drilling and permitting activity. As of the end of January 2015, at most major plays in the U.S., the backlog ranged from three to seven months.

However, when drilling activity remains at reduced levels long enough to outlast the cushioning effect of the well-completion backlog, the number of new wells brought online will begin to decrease, which they say can eventually reduce production rates. Additionally, production may decline should producers defer completions.

Read the EIA’s full analysis here.