"In the second paragraph above we stated today’s conventional wisdom in the natural gas market. That is: (1) dry gas returns are low, wet gas returns are great, (2) so producers have shifted as many rigs as possible to wet gas plays, (3) so dry gas production is falling, (4) wet gas production is increasing, and (5) wet gas production has increased enough to make up the difference for declines in dry gas and that’s the reason natural gas production is staying relatively flat.
But there is something wrong with the math of this wisdom. Wet gas production is increasing, but not that fast. Something else must be going on. And there is. Dry gas production is not falling off by much. While several dry gas plays are in relatively steep decline, one dry gas play is not decreasing – it is increasing. And not only that, it is projected to keep increasing regardless of what happens to the price of natural gas. Where is this gravity defying play? It is the Northeast Pennsylvania portion of the Marcellus.
The team from Bentek blasted the notice out last week, but you may have missed it when packing the car for your Memorial Day road trip. Here are the cliff notes:
Northeast Pennsylvania dry gas production can grow 31% over next 16 months, even with zero rigs operating. Even if all rigs were taken out of the Northern Marcellus and current drilling activity ceased, regional dry gas production can grow 1.3 Bcf/d over the next 16 months.
Due to the large non-producing well inventory in the Northern Marcellus, coupled with high IP rates in the region, production in Northeast Pennsylvania can still grow from approximately 4.1 Bcf/d today to 5.4 Bcf/d by September 2013, a 31% increase that results exclusively from working off the existing backlog of 1,000 non-producing wells.
This is the biggest deal going in natural gas supply forecasting. Over the past 18 months, producers have continued to drill in the Northern Marcellus even though pipeline capacity and other constraints limit their ability to move the gas. Part of it is drilling to hold leases. Part of it is drilling in anticipation of relief of capacity constraints coming over the next few months.
Every well drilled but not completed and connected goes into the backlog. The backlog has built up to over 1,000 wells. That is so large that it will take years to work it off. And it only gets worked off if new drilling gets cut back. A lot. Otherwise the backlog hangs there forever, like a giant storage facility full of natural gas."