American Oil and Gas Reporter - March 2016 - 48

SpecialReport: Gas Industry Strategies
Tremendous Endowment
A decade ago, 80 percent of all rigs were drilling for natural
gas, and the industry was still assessing the extent of the resources
made accessible by horizontal drilling and multistage completions in the Marcellus, Utica, Eagle Ford, Haynesville, and other plays.
I am not sure it is possible to estimate accurately how much
supply will be available in 10 years because technology does not
stand still. However, it is clear that North America has a tremendous natural gas endowment, enough to keep multiple generations abundantly supplied.
So the resource has been proven, the supply infrastructure is
in place, and new markets are being cultivated. Drillers are just
waiting for the right price signal.
Fifteen years ago, a gas price of $4 an Mcf was considered
the "bottom line." Anything below $4.00, and generally speaking, operators would not drill new wells. That has been turned
on its head, but what is the new bottom-end price at which drilling
economics turn negative?
We know this much: As gas prices retreated in 2015, U.S. gas rig counts
fell below 300 for the first time since the Baker Hughes weekly survey
began tracking gas versus oil rigs in 1987. By the second week of Feb-

48 THE AMERICAN OIL & GAS REPORTER

ruary, only 102 rigs were drilling for natural gas.
It is difficult to draw correlations between rig counts and supply because the new class of rigs drilling in shale plays is so much
more productive. The Marcellus and Utica are proof of that. Despite 50 percent rig count declines in both plays over the past year,
production reached record levels in 2015.
My guess is that drilling productivity will continue to get better. But even in the Marcellus, where per-well productivity has
tripled over the past five years, EIA data show month-to-month
drops in production since June, reaching a projected decline of
225 million cubic feet a day in January. That is a tiny percentage of the 15.2 Bcf/d being produced in the Marcellus, but it is
a noteworthy departure from the trend line.
While total U.S. dry gas production was up slightly in the first
week of February compared with the same week in 2015, the EIA
forecasts a marked slowdown in year-to-year production growth
(from 5.7 percent last year to 0.7 percent in 2016) as reduced
drilling takes a toll.
I believe the numbers for both natural gas supply and demand
indicate we are at or near the bottom of the downturn. The situation will not change overnight, but as the new petrochemical,
electric generation, and LNG facilities now in the final stages of



American Oil and Gas Reporter - March 2016

Table of Contents for the Digital Edition of American Oil and Gas Reporter - March 2016

Contents
American Oil and Gas Reporter - March 2016 - Cover1
American Oil and Gas Reporter - March 2016 - Cover2
American Oil and Gas Reporter - March 2016 - 3
American Oil and Gas Reporter - March 2016 - Contents
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American Oil and Gas Reporter - March 2016 - Cover3
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