US natural gas production is starting to slip in response to lower natural gas prices, analysts said.
“Producers have been unable to generate any meaningful growth despite record levels of drilling during the past 12 months and could begin to lose ground on a year to year basis as early as fourth quarter,” according to a report released Monday.
Raymond James analysts earlier estimated third quarter production would be flat compared to the second quarter this year. Instead, producers are reporting actual volumes are even less than previously estimated.
Actual natural gas production for integrated producers fell to 11.49 bcf from previous estimates of 11.75 bcf for the third quarter, according to Raymond James.
The 2.6% decline was much greater than previous guidance given by the integrated oil and gas companies. Independent producers actual production fell slightly, 0.8%, compared to the estimates.
The explanation for the sharper than expected decline in actual output compared to estimates rests on accelerated maintenance schedules and curtailed volumes as natural gas prices came under significant pressure.
Spot prices at delivery point Henry Hub declined today to $2.97/Mcf from $3.06/Mcf last week and down 34% from last year’s price at this time of $4.50/Mcf.
Raymond James’s report is based on production estimates and actual data from 28 companies for July and August that represent half of total US natural gas production. Figures for September are still not available so conclusions are preliminary, the report said.
Raymond James suggested that this winter natural gas production will actually show declined compared to last year. Usually there is a 3-6 month lag before a decline in production shows up after the peak in rig count and peak in production.
This year, production started to show declines almost immediately following the peak in drilling activity. “Third quarter production was up less than 1% compared to the same period last year despite a 30% increase in gas drilling activity,” Raymond James said.