US Shale Gas Output Shatters Records, But Challenges Loom

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Efficiency has driven US shale gas production to new heights even as E&P companies continue to pursue a low- to no-growth strategy, but challenges producers have managed to avoid so far loom on the horizon.

The latest estimates from the US Energy Information Administration (EIA) show cumulative output from the nation’s seven largest shale plays has set new records every month since July 2021, with monthly average growth of 574.8 million cubic feet per day estimated through April. The agency estimates gas production will have grown 595.9 MMcf/d from March to April to reach 92.33 billion cubic feet per day — 5.67 Bcf/d higher than a year earlier.

“The primary factor driving these numbers higher is productivity,” said Peter McNally, the global sector lead for industrials, materials and energy at Third Bridge. “Other factors include better targeting of the best inventory and associated gas with oil production, but the real story has been productivity.”

About 186 MMcf/d, or 31.3% of April’s net production growth, will have come from Appalachia, while the Haynesville Shale will have contributed 173.4 MMcf/d, or 29.1% of net growth, EIA says. Associated gas from the Permian Basin will have contributed 120.2 MMcf/d, or 20.2%.

Year-on-year growth is more weighted to Appalachia at 1.94 Bcf/d or 34.1% of net growth, followed by the Permian at 1.85 Bcf/d, or 32.5%, and the Haynesville at 1.62 Bcf/d, or 28.6%.

Tapping the DUCs

“Lateral lengths of horizontal wells and optimized frack designs are the biggest factors, although historically as activity picks up some of these gains are surrendered to a certain extent,” McNally explained. "Permian Basin gas volumes have picked up noticeably with oil production … and as gas/oil ratios go up over the life of older wells. Some of these gains on both fronts have come from what our experts have called ‘low-hanging fruit,’ where the best wells with the best available equipment and DUCs [drilled but uncompleted wells] are fracked and produced.”

Amid rising gas and oil prices, Appalachian E&Ps completed 769 wells and drilled 581 from July 2021 through February, lowering the DUC count by 188 to 443, a nearly 30% decline. In the Permian, 2,460 wells were drilled against 3,241 completions, lowering the DUC count by 781 wells, or 35.9%.

“This makes sense — those wells are closer to delivering cash flow anyway,” CFRA energy equity analyst Stewart Glickman told Energy Intelligence. He believes most production growth has come from completions of former DUC wells “with a bit of new drilling thrown in. But at some point, the DUC well counts will get so low that rig counts to begin drilling new wells will accelerate.”

Capacity Constraints

Meanwhile, various challenges to production growth remain. One such example is the latest delay in the nearly completed 303 mile, 2 Bcf/d Mountain Valley Pipeline. Many expected the pipe, which would carry Appalachian gas from West Virginia to markets in the Southeast, to open this summer. But in a decision that threatens the entire project, a federal court remanded key authorizations, leaving the final leg in limbo.

“If you can’t readily ship the gas to market without a huge basis differential, why go to the effort to bring it to the surface,” Glickman said.

Productivity Declines

Another headwind to growth: the declining production of a well over its life makes “obtaining production growth harder, especially if you’ve been underinvesting lately,” Glickman said. As a result, today’s effort to contain costs may compound the problems of a market already strained by labor shortages and supply-chain problems.

“The oil and gas industry has suffered two collapses in the last seven years,” McNally said. “Labor is tight in a lot of industries, but a portion of the legacy oil-field workforce has moved on and is unlikely to return. So getting crews to work on rigs and in the supply chain is difficult.

“At the same time, frack equipment has lacked investment for two years and intense fracking — more horsepower, more sand — is using up the spare capacity that the industry had,” he added. “Long lead time items like pumps have become longer lead time items, especially equipment coming from overseas.”

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