American Oil and Gas Reporter - September 2015 - 169

but have been greater than the five-year
average since the end of May. We project
inventories will end October at 3.867
Tcf, which would be the second- highest
October level on record."
EIA's forecast for U.S. natural gas
consumption averages 76.5 billion cubic
feet a day in both 2015 and 2016, compared with 73.5 Bcf/d in 2014. The agency
projects gas consumption in the power
sector will increase by 13.9 percent this
year, then decrease by 3.4 percent in
2016. "Relatively low natural gas prices
support increased use to generate electricity
in 2015," EIA reasons.

It adds, "Industrial sector consumption
increases by 2.3 percent in 2015 and by
5.0 percent in 2016 as new industrial
projects, particularly in the fertilizer and
chemical sectors, come on line later this
year and next, and as industrial consumers
continue to take advantage of low prices.
Natural gas consumption in the residential
and commercial sectors is projected to
decline in both 2015 and 2016."
Natural gas production, meanwhile,
is projected to increase by 4.0 Bcf/d (5.4
percent) this year and by 1.8 Bcf/d (2.3
percent) in 2016. "Despite data showing
month-over-month production declines

in May and June, natural gas production
remains higher than year-ago levels,"
EIA points out. "We expect moderate
growth through 2016, with increases in
the lower-48 states more than offsetting
long-term declines in the Gulf of Mexico.
"Increases in drilling efficiency will
continue to support growing natural gas
production, despite relatively low prices,"
the agency goes on. "Most of the growth
is expected to come from the Marcellus
Shale as the backlog of uncompleted
wells is reduced and as new pipelines
come on line."
❒

Texas Oil Production Up, But TPI Down
HOUSTON-The Texas petroleum
economy declined in every category
except crude oil and natural gas production
during the first six months of 2015, the
Texas Petro Index says. The composite
index of upstream economic indicators,
declined 18 percent from its October
2014 peak of 312.0, reports the Texas
Alliance of Energy Producers, which
sponsors the index. Its June mark of
255.7 is off 17 percent compared with
June 2014.
"Virtually all components of the TPI
are posting deep year-over-year declines,
with the notable exceptions of crude oil
and natural gas production, which continue
to expand, and industry employment estimates in June," says Karr Ingham, the
economist who developed the index and
updates it monthly for the Alliance. "Oil
production simply has not declined in
response to the clear market signal of the
steep decline of crude oil wellhead prices.
I interpret the reversal in June of declining
oil and gas employment in Texas as a
methodological anomaly."
TPI indicators illustrate the apparent
economic disconnect between oil production and wellhead prices in Texas,
Ingham says. According to the June TPI,
over the previous year the average wellhead price of crude oil declined 44.7 percent, to $56.24 a barrel from $101.68 in
June 2014. Yet, he says in that same period, the state's crude oil production grew
a little more than 15.8 million barrels, a
17.2 percent increase.
"The decline in the rig count and the
number of drilling permits, and indeed
in the number of wells drilled, has yet to
translate to a decline in Texas crude oil
production. In fact, the rate of growth
has yet to indicate a significant slowdown,"
Ingham poses. "It seems clear that Texas
crude oil production in 2015 will surpass
its all-time high of 1.263 billion barrels

in 1972, with estimated annual production
in 2015 totaling 1.284 billion barrels."
During the first half of 2015, the
statewide working rig count averaged
504, 42 percent fewer than during the
first six months of 2014, TPI says. Producers recovered an estimated 622.6
MMbbl of crude oil, a 17.8 percent yearover-year increase, along with 4.3 trillion
cubic feet of natural gas. The Texas Railroad Commission issued 5,564 drilling
permits in the first half of 2015.
Natural Gas, Job Trends
Though it calls the figures dramatically
less pronounced, TPI says natural gas
production and pricing in Texas also are
trending inversely. According to the index,
the gas wellhead price during the first
six months of 2015 averaged $2.70 an
Mcf, 44 percent below the average of
$4.62 an Mcf during the first six months
of 2014. Meanwhile, it points out, Texas
gas output this year through June totaled
4.3 billion cubic feet, 3 percent more
than in the same time last year.
Growth in Texas natural gas production
remains driven by casinghead gas, Ingham
reports. "For most of the last five years,
fewer than 10 percent of rigs at work in
Texas were drilling primarily for natural
gas, and yet Texas natural gas production
has continued to increase," he says.
Estimated oil and gas industry employment in the state during June of
285,500 may reflect a statistical falsepositive by adding an estimated 4,600
jobs to the May estimate, Ingham says.
"That increase makes little sense," he
holds, considering that through May, upstream oil and gas employment rolls had
declined by 24,000 from the December
peak-roughly half the 50,000 direct job
losses Ingham says he predicted at the
outset of the economic downturn.
"I suspect that increase is a temporary

estimation phenomenon, because the
Texas Workforce Commission bases
monthly estimates on sampling data that
will not be reconciled with other employment reports until sometime in early
2016," he reasons. "According to the
preliminary June data, roughly 20,000
jobs have been trimmed from upstream
oil and gas payrolls in Texas."
If the employment numbers seem more
favorable than expected in this cycle of
contraction, Ingham cautions it well may
be that the final employment outcome
will not be known until early next year,
when the annual revisions take place.
Indicators
Among leading TPI indictors during
June:
* Crude oil production in Texas totaled
an estimated 107.6 million barrels, about
15.8 MMbbl or 17.2 percent more than in
June 2014. The value of Texas-produced
crude oil totaled more than $6 billion,
35.2 percent less than in June 2014.
* Estimated Texas natural gas output
was more than 722.4 Bcf, a year-overyear monthly increase of 1.3 percent. With
June natural gas prices averaging $2.69
an Mcf, the value of Texas-produced gas
decreased 40.4 percent, to $1.93 billion.
* The Baker Hughes count of active
drilling rigs in the state averaged 363,
compared with 891 in June 2014. Drilling
activity in Texas peaked in September
2008 at a monthly average of 946 rigs
before falling to a trough of 329 in June
2009. In the latest economic expansion,
which began in December 2009, the
statewide average monthly rig count
peaked at 932 in May and June 2012. At
the low point of 360 drilling units in the
current contraction, the weekly rig count
was down 60 percent compared with the
latest cyclical peak of 904 in the fourth
week of November.
r
SEPTEMBER 2015 169

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