By Sumit Roy
United States natural gas production in the lower 48 states fell by 0.6% in March, according to the Energy Information Administration. Output dropped from 73.12 bcf/d to 72.71 bcf/d. That leaves output up by 0.85 bcf/d, or 1.2%, from a year ago. However, as can be seen from the chart below -- output hasn't changed much over the past 15 months.
The evidence suggests that the steep decline in the rig count has not had a meaningful impact on production. According to the EIA's data, while most states have seen their output hold steady or fall, Pennsylvania saw its output rise a sizzling 2.5 bcf/d, or 69%, from 3.6 bcf/d to 6.1 bcf/d in 2012. Without the growth in Pennsylvania's Marcellus Shale, overall U.S. output may have declined, as many had expected.
Elsewhere on the supply side, the EIA reported that Canadian imports fell to 4.67 bcf/d in March, down 0.26 bcf/d from a year ago. At the same time, LNG imports sagged to an inconsequential 0.27 bcf/d, down by 0.35 bcf/d year over year, as U.S. natural gas prices remain well below prices seen in other countries.
Mexican exports rose by 0.34 bcf/d in March, up 23%. Exports should continue to grow as Mexico's consumption of natural gas increases going forward and new pipeline capacity is built to supply that need.
Turning to demand, industrial demand for natural gas registered 21.03 bcf/d in March, up an impressive 1.63 bcf/d, or 8.4%, from a year ago. Presumably, economic strength is fueling that growth.
The other major demand component -- electric demand -- fell to 19.43 bcf/d in March, down 2.41%, or 11%, from a year ago. However, it is worth mentioning that during the same time last year, electric demand was up a whopping 6.3 bcf/d, or 40% due to unprecedented levels of price-related coal-to-gas switching.
This latest data indicates that while some of the coal-to-gas switching had reversed in March, gas demand was still up significantly from the levels of two years ago. Some of that was likely weather-related -- March was cooler than normal -- but it may also suggest that some of the coal-to-gas switching was permanent.
Finally, residential and commercial demand were up a massive 8.5 bcf/d, or 65%, and 5.2 bcf/d, or 50%, respectively, during March. Again, cooler weather was likely a culprit in the increase, but demand seems to have risen even on a weather-adjusted basis.
All things considered, the latest EIA data indicates natural gas demand is growing steadily, which necessitates a corresponding increase in natural gas production. At current prices, production has largely been flat. If demand continues higher, prices will need to rise to encourage more drilling and output.