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Analyzing the bearish natural gas production forecast for 2015

Cooler weather and the EIA inventory report help natural gas prices (Part 4 of 7)

(Continued from Part 3)

Production trends

The EIA’s (US Energy Information Administration) January STEO (Short-Term Energy Outlook) projects that total dry natural gas production will grow by ~3.1% to 72.26 billion cubic feet, or Bcf, in 2015. The EIA projects that the production will grow by ~2.3% to 73.94 Bcf in 2016.

According to the EIA’s estimates, dry natural gas production was 70.11 Bcf in 2014.

High production levels are bearish for natural gas prices. Weak prices hurt the margins for companies that produce gas—like Southwest Energy (SWN), Range Resources (RRC), WPX Energy (WPX), and QEP Resources (QEP). Since most of these companies are part of the Energy Select Sector SPDR ETF (XLE), the energy price outlook will likely affect the ETF as well.

According to the EIA, dry gas production was at a record high in October 2014. It was at a record high for the eighth consecutive month. October is the most recent month for available EIA data. In October, dry natural gas production was 72.2 billion cubic feet per day, or Bcf/d. It was 6.8% higher than it was in October 2013.

According to Bentek Energy, production was projected to increase more during December. It was projected to increase to 72.8 Bcf/d. Bentek Energy also indicated that production hit a one-day record high of 73.6 Bcf/d on December 20.

The EIA will likely release the data from December in February this year.

Dry natural gas

Dry natural gas is the natural gas that remains after liquids—like propane and butane—have been removed from the marketed natural gas. Dry natural gas is also known as “consumer-grade natural gas.”

The EIA continues to be bullish about natural gas production in 2015. Read Must-know: Why the EIA is bullish about natural gas production to learn more.

Production gains

In fact, according to the EIA’s projections, 2015 will be the tenth consecutive year with production gains. This is due to booming production from shale plays—especially the Marcellus.

In the next part of this series, we’ll discuss the EIA’s natural gas consumption forecasts in 2015.

Continue to Part 5

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