Friday, September 28, 2012

Gas from Oil Wells

Yesterday I posted a picture of the natural gas flow from the EIA Annual Energy Review, a very informative, although slightly anthropomorphic, graphic showing where gas comes from and where it goes.  What I forgot to point out was that 27.7% of the gross gas withdrawals in 2011 came from oil wells.  That's 6.2 Tcf of a total withdrawal of 28.56 Tcf.  In 2010, gas from oil wells was 5.78 Tcf, or 21.5%.  In 2009, it was 5.19 Tcf, or 19.8%.

One of the wildcard factors that makes projecting future production more difficult is estimating how much "associated" gas will be produced.  I first looked at that stat and felt a sense of relief.  With the growth in oil rigs versus gas rigs over the past couple of years I thought it would be worse.

Until...I looked at the rig counts.  In 2011, the total rig count increased by 313.  There were 428 new oil rigs (765 to 1,193) and 110 fewer gas rigs (919 to 809).  Hmmm.  Fast forward to today, and the total rig count has dropped by 159 rigs, but oil rigs have increased by 217 (1,193 to 1,410) and gas rigs have decreased by 374 (809 to 435).

That's a big difference from 2011.  It all depends on where the oil rigs are drilling (i.e. are they flaring gas instead of taking it to market, etc.), but I would expect the percentage of gas from oil rigs to continue to increase in 2012.  That's not good for dry gas plays like the Haynesville Shale.  Because gas from oil wells is pretty much a byproduct and its production is unrelated to price, there is an increasingly large block of natural gas production that will not respond to price fluctuation and will continue to be produced (unless oil prices drop).  The net impact is that producers will continue to avoid drilling in dry gas plays like the Haynesville.

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