Oil wells in the Bakken Shale play of North Dakota (pictured) are producing near-record volumes of associated gas, according to Energy Information Administration figures. (Source: Shutterstock.com)
Associated gas volumes from oily U.S. basins continue to pressure natural gas producers, several of which are slowing drilling activity.
Natural gas output from the Permian Basin and the Bakken Shale, the Lower 48’s two top oil-producing basins, is expected to grow further in May, according to the U.S. Energy Information Administration’s latest forecast.
Permian Basin associated gas production will grow by approximately 140 MMcf/d to hit a record 25.24 Bcf/d in May.
Associated gas volumes from the Bakken will grow by about 17 MMcf/d month-over-month to reach nearly 3.42 Bcf/d next month, according to EIA estimates. Bakken associated gas production is coming off a record high of 3.63 Bcf/d in December 2023.
Operators in the Permian and Bakken, by and large, are drilling the shale plays for barrels of crude oil.
With U.S. natural gas prices near record lows—prices are frequently going negative in oversupplied regions, like the Waha Hub in West Texas—natural gas output in the Permian and Bakken is more a cost of doing business than a revenue-generating segment for these oil producers.
But growing associated gas volumes from oily regions have plagued dry gas producers in Appalachia and the Haynesville Shale.
Natural gas giants EQT Corp. and Chesapeake Energy announced plans to curtail gas production and slash new drilling in response to low commodity prices.
Private Haynesville producer Aethon Energy also confirmed cutting rig activity on its East Texas and northern Louisiana acreage.
Gas production from the Haynesville Shale will decrease by 222 MMcf/d to around 16 Bcf/d in May, per EIA data.
Appalachia gas volumes will fall 137 MMcf/d to around 36.1 Bcf/d next month.
Experts say curtailment by U.S. dry gas producers will have muted effects on commodity pricing, though.
“By the time you layer on associated gas, [gas producers’] impact on the market is still in and around the margin,” said Jeff Tillery, partner and COO at energy intelligence firm Veriten, on April 16 during the World Oilman’s Minerals & Royalties Conference.
“There’s such a big year-to-year weather variable, I don’t think a handful of producers can really control the market or control price,” he said.
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Crude mood
Where natural gas prices have been quite depressed, crude oil prices have been constructive for U.S. operators.
WTI spot prices at the Cushing, Oklahoma, trading hub have grown nearly 20% from the beginning of January through the first week of April—to $86.35/bbl from $72.49/bbl, EIA reported.
International crude grades, including Brent crude and DME Oman crude, have traded at even higher premiums.
More recently, geopolitical instability in the Middle East has raised questions about future supply disruptions to global crude oil markets.
Middle East tensions reached a new flashpoint over the weekend as Iran launched hundreds of missiles and drones toward Israeli military targets.
But the escalating Arab-Israeli tensions haven’t had material impacts on crude production from the region so far, analysts say.
Production cuts implemented by the OPEC+ cartel have also supported some of the uplift in pricing.
While OPEC and its allies have slashed crude supply, Western oil producers have boosted output. Contributions from the U.S., Canada, Guyana and Brazil—which recently joined OPEC+ but isn’t capping production—are expected to offset supply cuts by the OPEC+ alliance.
U.S. production growth is being driven by the Permian Basin of West Texas and southeastern New Mexico.
Permian crude production will grow by 12,000 bbl/d to reach approximately 6.17 MMbbl/d next month. Output hit a record 6.21 MMbbl/d in December 2023.
The Bakken play in North Dakota and Montana is an older onshore oil play but still a major contributor to U.S. production.
Bakken production will grow by 4,000 bbl/d month-over-month to reach 1.25 MMbbl/d in May. The play’s output peaked at over 1.54 MMbbl/d in November 2019, per EIA data.
Crude output from South Texas is also growing: Eagle Ford Shale production will grow around 5,000 bbl/d to 1.16 MMbbl/d in May.
Eagle Ford oil production peaked at 1.72 MMbbl/d in March 2015.
The extra 16,000 bbl/d of oil production will offset declining output from the Rockies’ Niobrara Formation (down ~4,000 bbl/d from April to May) and from liquids-rich fairways in Appalachia (down ~1,000 bbl/d).
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