Gas-Gushing Wells Have U.S. Stockpiles Swelling to Record

  • Rigs in shale plays yielding record volumes of natural gas
  • U.S. natural gas drillers facing lowest prices in two decades

U.S. natural gas drillers facing the lowest seasonal prices in two decades are trying to cut back supplies. The only problem: They’re too good at their jobs.

Rigs are freeing record volumes of gas from new wells in six out of the seven largest U.S. shale deposits, Energy Information Administration data show. That’ll keep supplies expanding to all-time highs this year and next even as drillers sideline rigs, the agency said in a forecast Tuesday.

The persistent supply flowing out of shale formations from the Marcellus and Utica in the eastern U.S. to the Eagle Ford in Texas dragged gas prices last month below $2 per million British thermal units for the first time in three years. Stockpiles of the fuel hit an all-time high in October, threatening to keep the market oversupplied through what may prove to be a mild winter.

“We are only producing the best wells in this low-cost environment, so that will increase your average,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “Even though we are officially in the heating season you are seeing very little appetite to put on long positions as the industry has yet to address and continues to add to the surplus.”

The continual supply has prompted speculators to raise bearish bets on gas to a record this month. Gas futures traded on the New York Mercantile Exchange fell 5.7 cents to settle Wednesday at $2.263 per million Btu, the lowest level for this time of the year in two decades. Prices briefly slipped to $1.948 on the New York Mercantile Exchange in October.

“Increases in drilling efficiency will continue to support growing natural gas production in the forecast despite low natural gas prices and declining rig activity,” the EIA said in its Short-Term Energy Outlook Tuesday.

New pipelines will help gas “freely flowing” out of Appalachia in 2016 following years of capacity constraints, Range Resources Corp. said in a presentation last month.

While total gas production from the top seven shale plays is forecast to drop in December, a rig drilling new wells in the Marcellus will yield a record 8.741 million cubic feet a day, keeping production declines modest, according to an EIA report released Monday.

In the Utica, Rice Energy Inc. drilled a well known as Bigfoot 9H that has delivered more than 7 billion cubic feet of gas since it came online in June 2014, Chief Executive Officer Daniel Rice said in a call with analysts last week.

“It’s amazing to think we’ve been developing the Utica since 2014,” Rice said, “and have yet to see any declines from any of our 14 producing Utica wells.”

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