In a new report, analysts at Citi looked at whether falling rig counts will lead to a sustainable drop in natural gas production. Analysts believe that production levels will likely remain high for a number of reasons.
The Numbers
Total oil and gas rig counts have fallen by 42 percent from peak numbers in October 2014. However, because producers are shutting down the least productive and least efficient rigs first, production levels have continued to rise.
New Pipelines
New pipelines in the Northeast could boost gas production numbers in the second half of 2015. Analysts note a large number of drilled-but-not-completed wells in the region.
Production Decreases Only Temporary
Analysts point out that the decision to shut down rigs is easily reversed, and any significant rebound in prices will likely be met by an increase in rig counts and production.
Compared to drilling new wells, re-starting offline rigs is cheap and simple.
“Surprise” Production Growth
Analysts fear that locations such as Haynesville and Midcon could be sources of unanticipated gas production growth in the next couple of years.
Outside of gas production in the Northeast and output associated with oil production, analysts predict that Haynesville production could rise as much as 0.5 Bcf/d in 2015 and 0.8 Bcf/d in 2016.
Outlook
Overall, analysts are forecasting at least a 4.0 Bcf/d increase in North American gas production in 2015 and a 1.5 Bcf/d increase in 2016, but they caution that there is upside risk to those estimates.
Shares of the U.S. Oil Fund ETF USO 4.06% and U.S. Natural Gas Fund ETF UNG 2.79% are down 55 percent and 42 percent respectively in the past year.
Read this article and all my other articles for free on Benzinga by clicking here
Want to learn more about the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
