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U.S. Shale Gas Production Gains Even as Drilling Declines

July 24 (Bloomberg) -- Natural-gas production from U.S. shale deposits climbed to a record in May even as the number of drilling rigs plunged amid decade-low prices.

Output in the lower 48 states rose 12 percent to a record 25.58 billion cubic a day from Oct. 1 to May 1, Energy Department data show. The gas-rig count fell 45 percent to 518 last week from the October high of 936, according to Baker Hughes Inc. Gas fell to $1.902 per million British thermal units in April, the lowest intraday price since January 2002.

“It highlights the fact that production lags behind drilling activity, it doesn’t turn on and off like a switch,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “There is generally a lag of six to nine months between changes in the rate of drilling and the changes in the rate of production.”

Production data provided to Bloomberg is from a presentation the Energy Department is scheduled make to Congress on Aug. 1.

Shale-gas production in April accounted for 35 percent of total output of 74.48 billion cubic feet a day in the lower 48 states, according to the department’s Energy Information Administration monthly EIA-914 report on June 29. That’s up from 29 percent a year earlier.

Marcellus Shale

The biggest supply gain over the past year is from the Marcellus shale in the Northeast, where vast reserves are being untapped in close proximity to New York City and other major U.S. urban areas. Output from the deposit in Pennsylvania and West Virginia averaged 6.85 billion cubic feet a day in May, more than double year-earlier levels, department data show.

The data is “a confirmation of the prolific production of shale,” sustained in part by drilling efficiencies and the sheer amount of gas obtained as a byproduct of reaching for oil and other liquids, said Anthony Yuen, a strategist at Citigroup Inc. in New York.

The number of rigs drilling for gas is the fewest since August 1999, while the oil-rig count climbed to a record 1,427 in the week ended July 13, according to Baker Hughes data. The number of oil rigs, which fell by 13 to 1,414 last week, is up 19 percent this year.

Gas for August delivery on the New York Mercantile Exchange advanced 7 cents, or 2.3 percent, today to $3.187 per million Btus, the highest settlement price since Dec. 17. Gas is up 6.6 percent this year, rebounding 68 percent since dropping to a 10-year low in April.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net;

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net

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