Slowdown in U.S. Natural Gas Drilling Hasn't Slowed Down Supply - Yet

Drilling in the U.S. for natural gas appears to have peaked last fall, but don't expect supply to decline until at least the second half of the year, cautions Raymond James analyst Andrew Bradford.

In a report to clients on Tuesday, Mr. Bradford noted that data shows drilling intensity in unconventional natural gas plays, including the Fayetteville, Woodford and Barnett shale formation started to top out in mid October, while drilling in tight sands peaked in September and conventional plays, a month before that.

He said the data represents "early signifiers" that North American natural gas supply is on its way down, but when and by how much remains uncertain.

He told clients:

Firstly, the magnitude of the slowdown in drilling to date hasn't been sufficient to reverse the current high rate of U.S. production growth - though the rate of growth probably has slowed somewhat. Besides, declines in drilling effort take as many as three to four months to manifest in measurable production declines, so whatever impact there may have been won't be detectible until 2Q09 anyway.

He added that even though unconventional drilling intensity has declined by as much as 17% to date, he thinks drilliing has mostly declined at the least productive areas of each play.

"As such the production impacts will likely be muted until more rigs leave the market," he wrote.

Mr. Bradford also commented on data suggesting that Canadian natural gas production has fallen. He said the pace of the decline may be more moderate than hoped for, given the cold weather that has draped most of Western Canada and resulted in freeze-ups and curtailed field maintenance.

Comments

[BrucePile:]

North American gas drilling could be fast approaching a point of zero return energy-wise and business model-wise. The net energy return EROEI (Energy Returned On Energy Invested) may be soon getting to 1, meaning companies must buy and input as much energy into drilling and recovery of the gas as it gives us back in usable energy. The drillers have been running faster and faster just to keep in place. This problem coupled with the crippling effects on drilling inflicted by the credit crunch may create a supply destruction even greater than the demand destruction, which is mostly already in the market.

To look at this drilling problem, see my post www.theoildrum.com/nod...

Jan 10 12:10 AM