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The Leidy Effect Among Other Regional Elements

Production Levels Reveal Signs of a Growth Rebound in July

July 17, 2015 | By Luke Larsen

The Energy Information Administration released the following excerpt in its monthly Short Term Energy Outlook (STEO, July 7, 2015):

“Preliminary data indicates that natural gas production in the Northeast declined during May and June, contributing to total U.S. natural gas production in June averaging 78.2 Bcf per day (Bcf/d), down 1.2 Bcf/d from the April level. The decline largely reflects maintenance and construction in the Marcellus producing area. Transcontinental Pipeline restricted capacity on segments of its Leidy Line, which flows natural gas produced in the Marcellus Shale to market areas, beginning May 1 and lasting through late June. The capacity restrictions were related to construction on an expansion that will ultimately increase Marcellus takeaway capacity. EIA expects production growth will resume in July.”

To say that the investment and trade community has been mildly concerned with natural gas production growth would be a tremendous understatement. Earlier this year as the U.S. emerged from winter and the associated freeze-off period, most analysts predicted that the production growth witnessed during much of 2014 would soon return to record levels and even eclipse the rate witnessed this past December. Furthermore, most of the industry believed that this prophecy would come to fruition well before the heavier demand associated with the long hot summer days ever set in. However, here we sit midway through the month of July and Lower 48 production remains somewhat compromised on the year. Through the first two weeks of the month, PointLogic Energy is measuring gross production levels just above 80 billion cubic feet per day (Bcf/d). Furthermore, nearly seven months into the year this level is STILL short of December 2014 by roughly 0.75 Bcf/d representing a 1% decline from that all-time high.

Relevant supply growth? All in the eye of the beholder

If you look at year-to-date, or an annualized comparison, PointLogic’s Wellhead Report is showing a healthy 2.78% gain. Total U.S. Lower 48 is running at 79.4 Bcf/d at the midway point of 2015 while the average 2014 value was right near 77.3 Bcf/d.

PointLogic Energy Wellhead Production Lower 48

Where are we seeing growth so far this year?

Despite the talk of flat growth over the last several months, a closer look reveals that there has definitely been some additional supply coming on year over year. Let’s take a closer look at the regions in which we are seeing that growth.  

Out of the eight EIA supply reporting regions, PointLogic Energy is reflecting year to date (YTD) annualized growth in three of them (Eastern, Permian & Rockies) while the other five regions are reflecting unchanged to slightly lower deltas year over year. We will document the top three supply regions in each of the aforementioned categories as well as any interesting side notes within those regions.

Year-to-Date Regional Production Change

Leading the charge in the growth category is the Eastern U.S. where without the year over year regional increase of more than 12%, total Lower 48 Supply would be down firmly by 0.234 Bcf/d, or about (0.3%). The Permian and Rockies gains for the most part pale in comparison to the losses absorbed across the rest of the producing basins.

In the Eastern U.S. alone, PointLogic’s Wellhead Production Report is broken down to more or less mirror the traditional Monthly EIA #914 Production Report. It displays production for nine individual states as well as the ‘Other States’ category which includes Illinois, Indiana, Maryland, Missouri and Tennessee. Out of those ten sub-regions, Ohio, West Virginia and Pennsylvania are championing the entire U.S. with YTD annualized gains of 40%, 19% and 7% respectively. Those large percentage increases represent volumetrically 926 MMcf/d, 618 MMcf/d and 917 MMcf/d as the Eastern Supply Basin through June has produced at an average rate of 19.74 Bcf/d with March coming in as official record high month of 19.98 Bcf/d.

Gross Wellhead Volumes

Over the past several months we have seen Eastern volumes struggle to reach that March level again. In fact during the month of June, PointLogic Energy saw pipeline volumes measuring only 19.33 Bcf/d. However, Transco pipeline has recently completed maintenance on Job ‘No. 68’ of their 2015 Major Construction and Maintenance. During this phase of the project, all gas received on Leidy Line “A” between Station 515 and Station 517 was required to be physically routed west towards Station 517 with the restriction lasting through Wednesday, July 1st. During that period all non-secondary reverse path, secondary firm, and interruptible transactions moving from west to east through Station 515 were not allowed.

Upon completion of this phase of the project earlier this month, PointLogic flow data immediately recognized an uptick of flows through Station 515 of more than 200 million cubic feet per day (MMcf/d). The screen capture below reflects a monthly view of compressor station throughput as reported by the pipeline and detailed visually by the PointLogic Energy Pipeline Flows Module. Corresponding with the maintenance event, June volumes at Leidy Line Station 505 E and Leidy Line Station 515 E averaged 1.47 and 1.53 Bcf/d respectively. Upon completion of the event these same two compressor throughputs have averaged 1.71 and 1.73 Bcf/d over the past two weeks.

PointLogic Energy Pipelines Module | Transcontinental Pipeline Compressor Points
(Click for larger view)

Changing the exclusive PointLogic Filter to highlight supply points on Transco shows a monthly uptick of more than 330 MMcf/d of additional production. Yet with receipts in Pennsylvania (PA) reaching nearly 2.5 Bcf/d this month, it is still well short of the 3.0 Bcf/d for PA in March. It should be no surprise that March correlates directly with the highest output in the East referred to earlier.

PointLogic Energy Pipeline Flows Module | Transcontinental Pipeline Supply Points
(Click for larger view)

PointLogic data shows that indeed additional, or perhaps previously constrained, production has come online. But in order to assess how the market is interpreting the impact from these new molecules, it’s important to look at what the expectations for 2015 were earlier this year. With that in mind, a deeper dive into the Utica is warranted (a region featured prominently in Get the Point reports). PointLogic data from June shows that Ohio production has reached above an average of 2.65 Bcf/d for the month. However, looking at PointLogic Energy’ Shale forecast model for Ohio Utica production from earlier this year, it shows that current levels, which includes more than 40% annualized growth, is just now exceeding expectations for this play as detailed in the chart below. The East Central region is up more than 6% in July alone.

Ohio Utica Shale

Another area in which we have recognized somewhat significant growth over the past year is the Permian as oil and associated arbitrage prospects have kept activity going in the west Texas play. Through June of this year, PointLogic actuals have average production gains of slightly more than 6% versus 2014. At just above 6 Bcf/d this is a YTD annual increase of +377 MMcf/d. During July, PointLogic pipeline scrapes and model factors have the area averaging just under 6.2 Bcf/d. The chart below details the monthly breakout of PointLogic Energy’s Permian Forecast Model for the current year. While the Permian fell below expectations during the months of April and May, it has definitely closed the gap in June. However, minimal growth is expected for the balance of the year.

PointLogic Energy U.S. Model vs. Actual Permian Region

Finally, the last bastion of production growth this year has been the Rocky Mountain region. Despite seeing a top monthly output during October 2014 of just above 12.5 Bcf/d, so far this year production is averaging just above 12 Bcf/d. This represents a small but additional production gain of +1.5%. The supply growth in this region is more or less directly attributable to the Bakken area (North Dakota) as the region has seen more gas capture due to infrastructure build out necessary to reduce the significant amount of flaring or release of fugitive emissions that has occurred there in the past. Recently, the North Dakota Department of Mineral Resources reported that the percentage of gas produced and flared remains unchanged at 18% (through April 2015) while production continues to steadily grow. Production was up 6.4% in May to top 1.6 Bcf/d, based on preliminary state only figures. The associated natural gas flared along with the internally measured volume of supply increased 23.5 MMcf/d during May and now stands at close to 293 MMcf/d. At the same time it was disclosed that North Dakota had an estimated 925 wells waiting on hydraulic fracturing crews and this was unchanged over the past month. PointLogic Energy data mostly confirms these production estimates out of North Dakota’s Bakken area with May volumes coming in at 1.597 Bcf/d an all-time record. During the month of June, that level has dipped slightly to 1.548 Bcf/d. Regardless, on an annualized basis North Dakota production is up almost 17% year to date and is averaging just above 1.5 Bcf/d.

North Dakota Production Growth

Regions where production is slipping south

As mentioned previously, despite the overall gains year on year within the regions documented above, slippage is apparent in several other areas of the country.  While these declines may not be significant enough to where they offset the gains elsewhere, it may just be a matter of time before the shortfall begins to rapidly accelerate, as deteriorating drilling economics have dictated that producers pull back activity in these areas.

The Midcontinent region is leading the production pull back currently with an annual drop of almost 3% through June. Driving the declines in the region is Texas District 9, 10 and areas in Arkansas which contain the three drier shale plays of Barnett, Haynesville and Fayetteville.  

In June the Barnett region was producing at a volume just shy of 4.58 Bcf/day while the 2015 average is right at 4.64 Bcf/day. On an annualized basis, daily production in this play is down more than 5.7%. Perhaps a little more disturbing is June 2015 versus April 2014. With that comparison of individual months you see Barnett down almost 10% during this 15 month window.

PointLogic Energy is showing Haynesville production for June at just above 3.5 Bcf/d and for 2015 the average in this play has been 3.78 Bcf/d. Compared against the 2014 average of 4.25 Bcf/d this particular play is down more than 11%. From its peak production point more than 3.5 years ago of 7.77 Bcf/d (November, 2011), production in this shale play has been more than halved.

Finally, looking at the Fayetteville Shale play we are measuring June production just shy of 2.6 Bcf/d with the average annual rate virtually unchanged from that level. While that comparison might reflect a somewhat steady level of output, when compared against 2014’s 2.78 Bcf/d, the basin is down almost 7%. The chart below displays production from all of the shales over the last seven years and while all three of the aforementioned shale plays show a narrowing output impact; perhaps most notable is the rapid decline rate in the Haynesville.

Total Shale Monthly Gas Production

The shale production declines detailed above are not symptomatic of the entire Midcontinent region as Oklahoma production is actually up more than 4.5% on the year. At 6.6 Bcf/d for the entire state, the growth is almost entirely representative of the activity in the Woodford region which accounts for roughly one third of that total volume. At 2.1 Bcf/d for 2015, Woodford has recognized a YTD annualized gain of about 6%.


While production growth for the current year has fallen short so far, we still have seen a year over increase that is nearing 3%. The month of July 2015, in particular, while only a few weeks old, has seen a significant uptick in producing region flow levels. So far versus only June, PointLogic is measuring gross wellhead volumes of more than 80 Bcf/d which is a one month increase of 1 Bcf/d or a little more than 1%. The majority of this growth is the direct result of competed maintenance projects with the most significant being the Southeast Leidy Expansion on Transco which was completed on the first day of July. So what does the rest of the year hold? The PointLogic Energy U.S. Gas Supply Model will show growth patterns and clues that will reveal our end of year 2015 projection. Drop us an email at info@pointlogicenergy.com or call us at 855.650.4500 ext. 2, and we’ll walk you through the model.

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