U.S. Oil And Gas Production Steady Despite Low Prices

Ponderosa forecasts ‘Long Road to Recovery’ for industry as supply continues to outpace demand

Crude oil prices have dropped 60% over the past 18 months. Natural gas prices are at their lowest point in almost four years, and will end 2015 with their lowest annual average since 1999. Composite prices for NGLs are at their lowest level since EIA began tracking the sector a decade ago.

Supply of all three commodities continues to outpace demand, a dynamic that will continue to impact markets for months and possibly years. That’s the backbone of Long Road to Recovery, the new report from Ponderosa Energy that explores the current market for those commodities, with analysis of events that will affect U.S. crude oil and natural gas production and prices over the next five years.

The report (view preview here [http://pondoenergy.blob.core.windows.net/cdn/DECEMBER%202015.pdf]), part of the subscription-based Ponderosa Market Outlook Service, notes that U.S. oil and natural gas production has been resilient in 2015 despite low prices that many industry analysts expected would significantly curtail output.

“Prices remain depressed due to over-production and insufficient demand growth,” said Porter Bennett, president and CEO of Ponderosa. Bennett has spent more than 30 years in the oil and gas industry and is best known as the founder of BENTEK Energy. “Low prices, especially for crude oil, should have brought lower production and greater demand, but international production has been stronger and U.S. production has grown by more than 500 MMb/d on average over last year. Supply and demand must be brought into balance, and excess crude and product stockpiles worked off, before prices can rise.”

The story is much the same for natural gas. Much of Ponderosa’s analysis is based on the premise that oil and gas are tied at the drill bit. When oil prices and production rise and fall, natural gas production and prices will move up and down accordingly, since today the majority of U.S. wells produce both oil and gas. Despite natural gas prices that are at their lowest point since 2012, and headed toward an annual average that would be the lowest in 16 years, U.S. dry gas production still rose by about 2.8 Bcf/d on average in 2015 compared to a year ago, to a new high of 71.8 Bcf/d.

“Several factors support U.S. oil and gas production, even at lower prices,” said Bernadette Johnson, a managing partner at Ponderosa and head of the company’s energy analytics team. “Wellhead economics continue to improve as technology gains cut drilling and completion costs. And while we expect U.S. production will trend lower in 2016, our analysis shows there are almost 4,200 drilled but uncompleted wells in inventory, and they will bring additional production as they are brought online.”

derosa says the global oversupply of crude oil will likely continue for another two years, and U.S. prices will not return to $60/bbl on average until 2018. Ponderosa earlier this year correctly forecast that prices would drop below $40/bbl in the fall of this year, and forecasts per-barrel prices will average about $52 in 2016. Ponderosa expects short-term natural gas prices will remain low due to forecasts of a moderate winter, but likely rise in the second half 2016 and trend higher through 2020 as U.S. demand for natural gas increases.  

Long Road to Recovery includes Ponderosa’s five-year production and price forecasts for crude oil, natural gas and natural gas liquids. The report, available to subscription clients of Ponderosa’s Market Outlook Service, also includes detail about the future of US exports of LNG, along with updates on pipeline infrastructure and supply and demand fundamentals of all three commodities. Ponderosa regularly publishes news and data about the crude oil, natural gas and NGL markets, providing research and analysis to clients and media about developments impacting those commodities both short-term and long-term.