The Energy Information Agency is in the U. S. Department of Energy

From an Article by David Bradley, Natural Gas Intelligence, October 17, 2017

Henry Hub natural gas spot prices this year and next will be lower than previously forecast, according to the Energy Information Administration (EIA), which now predicting an average of $3.03/MMBtu for 2017 and $3.19/MMBtu next year.

Those price forecasts, included in EIA’s latest Short-Term Energy and Winter Fuels Outlook, are both down from last month, when EIA was forecasting prices would average $3.05/MMBtu this year and $3.29/MMBtu in 2018.

Expected growth in natural gas exports and domestic consumption next year contribute to the forecast increase between 2017 and 2018 Henry Hub natural gas spot prices, EIA said.

In September, the average Henry Hub natural gas spot price was $2.98/MMBtu, up 8 cents/MMBtu from the August level.

New York Mercantile Exchange contract values for January 2018 delivery traded during the five-day period ending Oct. 6 suggest a price range of $2.28-4.63/MMBtu, encompassing the market expectation of Henry Hub prices in January at the 95% confidence level, EIA said.

“Futures prices declined in early September, largely because of reduced demand related to Hurricane Irma in Florida,” EIA said. “Most electricity generation in Florida is natural gas-fired, and electricity generation in Florida on Sept. 11 was 41% lower than the average of the first seven days of September.

“Injections of working natural gas into underground storage exceeded market expectations and historical averages for the first three weeks in September, which further contributed to lower prices.”

EIA expects domestic dry natural gas production to average 73.6 Bcf/d this year, a 0.8 Bcf/d increase from 2016, and is forecasting 2018 production to reach a record 78.5 Bcf/d.

“As rising natural gas production keeps pace with increasing consumption and demand for exports — particularly for liquefied natural gas (LNG) — EIA projects a balanced market from the last quarter of 2017 through 2018,” the agency said. “LNG export capacity is expected to increase, with LNG exports projected to exceed 3 Bcf/d in 2018, 66% higher than in 2017. Increased takeaway capacity out of the Marcellus and Utica shale plays is expected to help boost production.

The United States was a net importer of natural gas last year, averaging 0.6 Bcf/d, but it is expected to be a net importer this winter.

Increased pipeline capacity to Mexico and LNG export capacity on the Gulf Coast will help push net exports to an average 1.4 Bcf/d through the winter, EIA said.

Earlier this month, the EIA released its Natural Gas Monthly report that revealed that U.S. dry natural gas production increased year/year in July to 2.28 Tcf, a 0.5% increase from July 2016.

The July data also revealed that the largest importer of natural gas from the United States was Mexico via vessel at 14.4 Bcf.

Turning to storage, the government agency said inventories should total 3.8 Tcf at the end of October.

“During the first three months of the 2017 injection season, which starts in April, the rate of natural gas inventory builds was lower than the five-year average,” the agency said. “However, cooler-than-average temperatures in August reduced the use of natural gas for electricity generation, which contributed to builds that were above the five-year average during August 2017 and September 2017.”

Whither Shale Gas? Certainty and Uncertainty Abound!

Commentary by S. Tom Bond, Retired Chemistry Professor & Resident Farmer, Lewis County, WV

What can be said about projections for natural gas from shale? Other than generally over-estimated, a more accurate statement cannot be made – yet. The first item to consider is the reserve. Perhaps the most accurate figures are available from research done for the Post-Carbon Institute by David Hughes. His article in Nature, one of the two top scientific journals of the world, titled Natural Gas: The Fracking Fallacy, published December 3, 2014, is a further development of the theme and is a classic. It compares estimates by the U. S. Energy Information Agency and smaller, more limited but more detailed estimates. The EIA was found wanting, which was verified by their own publication, cited in the Nature article, published the 14th of October in 2014.

The article by Hughes referred to above is titled “Drilling Deeper“, subtitled “A Reality Check on U. S. Government Forecasts for a Lasting Tight Oil and Shale Gas Boom,” is a further development of the theme. It lists EIA reductions in reserve estimates and gives reasons to doubt they have it correct yet. Page 5 shows graphics of reductions of estimates of one of the Marcellus which estimate has been reduced from 410 Trillion cubic feet to 84 tcf, a factor of 80% by 2011. The same graphic shows reduction of Poland’s shale gas by 99%. The estimate of oil availabe from the Monterey Tight Oil was reduced by 96%.

Hughes survey involves seven tight oil plays and seven shale gas plays, involving 89% of current oil production and 88% current gas production from shale. The primary source of data for this analysis is Drillinginfo, a commercial database of well production data widely used by industry and government, including the EIA. Hughes concludes ” Tight oil production from major plays will peak before 2020. (That’s 5 years.) Also “Shale gas production from the top seven plays will likely peak before 2020.

He makes estimates of production for 2040, based on present drilling methods and without regard for price – essentially what can be, rather than what will be (see more below). His average first year field decline rate for Marcellus is 32% and average 3-year well decline rate is given as 74-82%. See page 11, where all seven fields are listed.

Hughes’ implications for the future of gas are hugely important, i.e. the EIA’s rosy forecasts have led policymakers and the American public to believe a number of false promises:

• · That cheap and abundant natural gas supplies can create a domestic manufacturing resurgence and millions of new jobs over the long term.
• · That abundant domestic oil and natural gas resources justify lifting the oil export ban (imposed 40 years ago after the Arab oil embargo)and fast- tracking approval of liquefied natural gas (LNG) export terminals.
• · That the U.S. can use its newfound energy strength to shift geopolitical trends in our long-term favor.
• · That we can easily limit carbon dioxide emissions from power plants as a result of natural gas replacing coal as the primary source of electricity production.

David Hughes report is chosen here because of that author’s expertise and because the analysis is more “fine grained,” it uses data from individual wells.

Hughes deals with the characteristics of individual wells and fields based on them. There are other influences he cannot deal with, however. I shall address some of them here. One is the decline of production as the drilling is forced out of “sweet spots.” These are areas of relatively high production. They were actively sought out at the beginning of production, because they bring the highest return on money and effort invested. That is the way all mineral development is done. It is sometimes expressed as “the easy stuff is taken out first.”

Because of rapid decline of shale wells, new wells must be drilled constantly. How available will the necessary capital be? That depends on the availability and the attitude of potential investors. Availability depends on the general economy. A crash would tighten up investment money. It also depends on the perception of reward (magnitude of profit), which will certainly be declining due to the fact these wells do not last; to increased public opposition and active campaigns of disinvestment from fossil fuels; to the continuing increase in efficiency of solar and wind; and to the inevitability of failures of companies due to low oil prices.

I think fracking will become less popular with the public as time passes by and the devastation it causes becomes better known – that is certainly the trend now, witness the extensive advertising the industry must put out to influence public opinion.

The biggie is how will the price of oil affect the demand for fracked gas. There is a world-wide slowdown in the economy, while the over-production of oil and gas in the U. S. is a factor, but decline in demand, is often forgotten.  Lower growth than expected has occurred in Europe and Asia.

More about this here and here. To paraphrase some college textbooks, “The Author leaves as an exercise for the reader,” the resolution of this video which shows both Senator Shelly Moore Caputo (R – WV) and Martin J. Durban, President of America’s Natural Gas Alliance, saying or implying the reserve estimates are increasing.

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