Impact of Excess Supply and Weather on the Natural Gas Market
Natural gas production
Natural gas production from the lower-48 states of the United States rose to 81.7 Bcf, or billion cubic feet, per day for the week ending October 27, 2015. The current production is 5.2% more than the level in 2014. However, natural gas production fell on a daily and weekly basis. The US natural gas production from the dry production and well-head production also rose for the week ending October 27, 2015, compared to the previous week.
Monthly drilling report
On October 13, 2015, the EIA (U.S. Energy Information Administration), published its monthly Drilling Productivity Report. The government agency reported that natural gas production is estimated to fall in the major shale regions in November 2015, compared to 294 million cubic feet in October 2015. The Marcellus and Eagle Ford shale regions could lead to a fall in natural gas production.
In contrast, the EIA October STEO (Short-Term Energy Outlook) report highlighted that natural gas production could rise in the long-term despite a short-term production fall. The US natural gas production could be hit by 79.1 Bcf per day in 2015, and by 80.6 Bcf per day in 2016.
The rise in production could be driven by improving productivity and lower drilling costs. However, natural gas prices fell almost 30% in 2015. This has led to a fall in drilling activity though production continues to rise. The uncertainty in the natural gas market could impact oil and gas producers like Rex Energy (REXX), Range Resources (RRC), Gulfport Energy (GPOR), and Devon Energy (DVN). The companies above account for 4.4% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). The natural gas production mix of these companies is greater than 40% of their total production. ETFs such as the iShares US Oil & Gas Exploration & Production ETF (IEO) and the PowerShares DB Energy ETF (DBE) could also be impacted by the uncertainty in the natural gas market.
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