Pennsylvania’s natural gas production has risen steadily in 2012 despite a significant reduction in the number of new natural gas wells being drilled by operators.
The August 23 Natural Gas Weekly Update examined the slowing pace of natural gas drilling in Pennsylvania, noting that the number of new natural gas wells started per day in 2012 has declined sharply in recent months. The state’s natural gas production, however, continues to increase despite the reduction in new well starts. According to BENTEK Energy LLC (Bentek), Pennsylvania’s natural gas production has increased every month in 2012, rising from an average of about 4.4 billion cubic feet (Bcf) per day in January to approximately 5.9 Bcf per day in August. As with production increases in recent years, the rising 2012 volumes are associated predominantly with horizontal drilling programs in sections of the Marcellus and other shale formations.
The state’s increasing natural gas production in 2012 is largely a function of a robust inventory of producing wells, particularly the relatively highly-productive horizontal wells drilled and completed during the past three to four years. The drainage area of wells – and therefore their productive potential – increases significantly by switching drilling orientation from vertical to horizontal, and expands even further with longer horizontal laterals. Underscoring the likelihood of continued natural gas production increases in Pennsylvania is the state’s large backlog of already drilled but not yet producing natural gas wells, as well as the impending completion of pipeline projects necessary to market the natural gas.
Natural gas prices increased over the report week at most spot market locations. For example, at the Sumas, Henry Hub, SoCal, Chicago, and Algonquin Citigate trading points, spot prices increased between 9 cents and 16 cents for the week. The largest price increase occurred at the Algonquin Citygate trading point (serving Boston), which increased by 16 cents (4.5 percent) from $3.55 per MMBtu last Wednesday to $3.71 per MMBtu yesterday.
The NYMEX October 2012 futures contract rose by 9.6 percent from $2.795 per MMBtu last Wednesday to $3.063 per MMBtu yesterday. The 12-Month Strip (average of October 2012 to September 2013 contracts) increased by 6.7 percent over the same period, from $3.290 per MMBtu last Wednesday to $3.510 per MMBtu yesterday.