Even as producers have pulled back on rigs the past few years, shale plays continue to perform so strongly that gas production continues to climb. Looking ahead, this production is expected to continue to grow more as the rig count increases.

According to Simmons & Co., gas production in 2014 is expected to increase by 2% to 67.8 billion cubic feet per day (Bcf) due to a flattening of legacy unconventional gas well decline rates along with the development of the Marcellus and growing associated-gas growth.

The investment firm stated in a September research note that several producer forecasts support this assessment. The report noted that production forecasts from companies such as EOG Resources, which expects its production to start to grow again in 2014 after declining for the past several years.

Despite the expected growth in gas production, the report anticipates that the market will remain solidly balanced at a similar rate to this past year. “While higher levels of natural gas production read bearish on a standalone basis, a continued decline in net imports combined with higher levels of industrial and power-generation demand should keep the supply-demand balance relatively unchanged year-on-year,” the report said.

On the gas storage front, Simmons & Co. is estimating winter gas storage (April 1, 2014) at 1.75 to 1.8 trillion cubic feet (Tcf) and at the end of the injection period (November 1, 2014) estimates gas storage at 3.8 to 3.85 Tcf.

On a long-term basis, the company anticipates increased demand from new infrastructure beginning in 2015 that will add between 12 to 20 Bcf per day of incremental demand by 2020. However, the report notes that the forward curve doesn’t provide an adequate price signal to meet this increased demand.

The report stated that producers need a sustained gas price outlook of $4.50 to $5 per million Btu (MMBtu) to begin to increase production to meet this level of demand. At this time, the forward curve does not rise above $4.50 per MMBtu until 2019 and does not exceed $5 per MMBtu until 2021.

Simmons & Co. anticipates gas prices to trade at the same level as the five-year average of $3.76 per MMBtu. The company anticipates a price range of $3.50 to $4.50 per MMBtu in 2014. “Despite our 2014 gas outlook being very similar to 2013, we are becoming increasingly positive on the long-term gas outlook as the demand horizon is approaching, which highlights the need for improved gas prices to incentivize production,” the report said.

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