with only 400 rigs, i assume that every day production is declining. Question, when will production decline below normalized demand (your estimate)? Once production falls below normalized weather adjusted demand, how long for it to fall meaningfully so that production is like 10 or 20 BCF a week below demand to where we can really start seeing it on the weekly chart? I would assume that once we hit those 10-20 BCF a week levels that Nat gas will be spiking toward $5, as it will be a near emergency to get some rigs out to bring it back, 9 months of at a 10-20 BCF weekly deficit, and you are missing 400-800 BCF from storage which would be serious.
FP is spot on. Meaningful declining production has not taken place yet.
Couple of things we must understand. Currently over half of all NG production comes from 3 plays (out of 100+): Haynesville, Marcellus, and Barnet shale; and only 9 operators [(out of 1000+) Chesapeake, Exxon, Encana, Exco, etc.]. Fracking in these shale areas is massive and highly efficient. So even when 600 rigs are pulled, they tend to be the most inefficient, older rigs outside of these areas. This is why we haven’t seen a meaningful decline in production.
However, overspending in the 1H2012 is leading to a cash crunch among E&P’s and companies will begin to pull rigs from these highly productivity areas, stopping the growth surge in recent years. It’s already taking place. Although I’m not sure when, you will soon begin to see modestly declining supplies lasting through 2013.
Supply will only pick up when the risks and rewards realign. By then (mid-2013), NG will be well over $4.
Your older rigs will close down as most of them already have, they shut down close to 600 rigs in 2012, but frackling gas in gas shale areas produce massive amounts of gas. One rig produces what 10 older rigs produced, they needed 4 dollars to stay afloat, but if you have a rig in frackling shale gas that produces 10 times even though production cost is much high they break even at 2 dollars, just check with Cabot Oil as they are the only ones that tell you the break even point is 2 dollars. Also remember the new pipeline has to open yet with starting flow of 1 BCF a day or 7 BCF a week going to 21 BCF a week by the end of January, those frackling rigs have been sitting for 2 years waiting for that pipeline to open. hey have a 1000 wells drilled but probably less then 50 will be used, the others are capped off.
My estimate for weekly underproduction is closer to 50 BCF. My reasoning is that in 2012 we used up an extra 1.5 TCF of dry gas out of inventory on an annualized basis. That inventory won't be available again in 2013. Also, with just 400 rigs running, my best guess is they can drill 5000 wells in 2013. If you figure 4BCF average EURs since most of them are primarily wet gas wells, you get an extra 4 TCF of production (figure 800 BCF or 20% of total EUR in year one). Finally, if you assume a 20% annual decline in production (or 5 TCF), you're losing 1 TCF right there. 1 TCF + 1.5 TCF = 2.5 TCF. On a weekly basis, that's 50 BCF lost.
Am i correct that fracking wells aren't enough to supply the entire country and that there will always be the need for the traditional type of well which requires a much higher nat gas price to incentivize to get them drilling them again?