Topic Report: Growth of U.S. Natural Gas Production

by Britt Dearman

May 12, 2008

The Energy Information Administration (EIA) forecasts that U.S. natural gas production will increase by 2.6 Bcfd in 2008. This topic report reviews the EIA’s production forecast.

EIA Natural Gas Production Forecast:

The EIA forecasts a 4.6 percent growth in natural gas in the U.S. in 2008. The EIA estimates that production grew 4 percent in 2007. U.S. marketed production (wellhead production less uses and losses) are shown below.

 
Source: EIA

Revisions to Estimates:

The EIA production estimates are revised over time. The plot below compares production estimates for total U.S. marketed production at three different points in time.

Source: EIA

The circled months show discrepancies between earlier and later estimates. Some of the variances are over 1 billion cubic feet per day (Bcfd). On a percentage basis, the variance is less than 2 percent. Also note that changes in initial month-to-month production rates have been as high as 2 Bcfd. Those large changes are typically revised.

From Where is the Production Increase Coming:

The plot below shows that the most of the production increase in the U.S. is coming from Texas. Lower-48 production in February 2007 was 52 Bcfd. The latest EIA production estimate for February 2008 was 57.2 Bcfd, or a 5.2 Bcfd increase in twelve months.

The EIA estimates that production in Texas increased from 15.8 Bcfd in February 2007 to 18.2 Bcfd in February 2008. Production from Louisiana, New Mexico, Oklahoma, Wyoming and the Gulf of Mexico increased from 25.4 Bcfd to 26.6 Bcfd over that same time period. Production from the remaining states increased from 10.8 Bcfd to 12.4 Bcfd.

 
Source: EIA

Production from Texas:

The chart below is a comparison of the estimates of production in Texas from the EIA and the Railroad Commission of Texas (TRRC).

 
Source: EIA and TRRC

The values differ in several respects. First, the TRRC data is measured at the wellhead and the EIA data is measured after uses and losses. Second, the EIA data after 2006 is subject to revision whereas the TRRC data for the last six months is subject to revision.

The TRRC adjusts preliminary production figures by a factor to reflect initial underreporting of production due to incorrect and delinquent reports. The adjustment factor is based on historical differences between the preliminary value and the final value. The latest adjustment factor is 1.17. The adjustment factor has been significantly higher and lower in the past. In the plot above, TRCC data through August 2007 is final.

One other important difference in the EIA and TRRC numbers is the narrowing gap between the estimates. From 2003 through 2006, the difference averaged 13 percent. However, the difference in August 2007 was only 8 percent. The historic percentage would place marketed production in Texas in August 2007 at 16 Bcfd rather than the EIA’s estimate of 17 Bcfd.

Most of the recent increase in production is coming from TRRC Districts 5, 6 and 9 in East and North Texas. These districts encompass the Barnett Shale, Deep Bossier and Cotton Valley plays. The plot below shows that production from the Barnett Shale (shown in the District 9 total) is the dominant contributor to production growth in Texas.

 
Source: Lippman Consulting

Conclusions:

The EIA’s estimated U.S. production growth in 2008 to 57.8 Bcfd appears aggressive. The areas with the greatest growth have steep initial production declines, so an increasing number of rigs are needed to maintain the same production growth rate. Also, some production discrepancies in Texas should clear up over time. Texas should continue to provide the bulk of the U.S. production growth, and the Barnett Shale should be the largest single contributor to production growth in Texas.

About the Author Britt Dearman is Manager of Special Projects for Apache Corporation.  He has 25 years of experience in the oil and gas industry, having held staff and management positions in production operations, construction, automation, reservoir engineering, gas plants and gas gathering, acquisitions and divestitures, and planning. In the Special Projects Department, Mr. Dearman has been involved in a variety of areas including: coalbed methane; CO2; power development; public policy; oil and gas marketing issues; environmental issues; business intelligence and strategic outlooks. He is the originator and editor of Weekly Energy Perspective.

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