Texas Railroad Commission Reports Rise in Drilling Permits for June '17

The Texas RRC released its drilling, completion, and permitting statistics for June this week.  Total new permits topped 1,200 for only the second time in years, with combo (oil+gas) and oil wells leading the charge.  Gas well permits were also up, but only represented 70 of the permits issued.

It's notable that new well completions still have not begun to follow the upward trend in permitting.  Whether that is tardy reporting, or maybe DUC count is rising, it suggests that unless many of these permits are being delayed or abandoned, we will eventually witness a surge in completions, and therefore production.

Gas new-drill completions reported in June were just 68, and oil completions were 446:

Haynesville Shale Production Turns Upward Again

The Louisiana state oil and gas reporting system shows well by well production, usually about 3-5 months lagging.  Based on the operators who have reported monthly production, February shows the first significant uptick in production after a long decline and plateau.  All the gains are in De Soto Parish, in fact.

With the rapid rise in working rigs, the Haynesville is likely to see gains for some time, perhaps returning to it's 7 BCFD glory next year if activity continues ramping up.  

Alberta Gas Production Rises in April, Averaging 0.2 BCFD Above April '16.

Whether seasonal factors and timing, or a fundamental shift is taking place, TC Nova pipeline receipts in April are up from Feb and March, and are now above 2016 levels.

Output normally declines in May, and we will soon see whether the same pattern prevails in 2017.  If the higher rig counts are translating into more molecules, it could reverse the inventory trend we have seen since January:

MISO: Gas Market Share of Thermal Generation = Down from 42% Last April to 34% This April

Much higher natural gas prices this year have made gas less competitive against coal in the MISO region.  MISO publishes excellent daily fuel mix statistics, unfortunately they also show that total load is down about 7% so far in April.  Most of that generation loss has been offset by declines in wind and nuclear output, but on average the wind will blow again, and nuclear power will return from maintenance.

Here's total output vs last year, for the last six months.  Load has been below the prior year in all but one month (December 2016).

ERCOT Reports March Fuel Mix

ERCOT's Demand and Energy Report for March 2017 was released yesterday.  It shows natural gas gained against coal:

But it also shows that the thermal power pie continues to shrink:

One big reason, besides low/no demand growth, is wind.  A big new generation record was set in March:

Texas Drilling and Permit Activity: Drilling Steady, Permitting Way Up

Completions have not yet accelerated, but permitting really took off in March, per the Texas Railroad Commission Drilling, Completion, and Permitting Report for March 2017:

Permits issued in March rose to 1,233 from about 930 in each of the three previous months (Mostly Oil permits, fewer Oil+Gas permits, and very few Gas permits:

Only 63 gas wells were completed in March.  Oil activity was much greater, at 475 new well completions, but still well below March 2016 (876 completions).

MISO Coal to Gas Switching Snapshot: March 2016 vs 2017

Load-adjusted, gas is averaging about 5 points of thermal marketshare below last year in March.

The slope is also different, with market-share varying more directly with overall thermal load size.  With lower demand anticipated as weather moderates in the back half of March, the market share loss should be more pronounced, since thermal demand in the 8-10 BCFE range is showing a gas share around 37%, vs last year at 43%.

Compounding this loss for natural gas is the higher wind output experienced in MISO.  Average daily wind output is 185 GWH this month, vs 135 last March.  That's a MASSIVE difference, displacing something on the order of 400 MMCF per day.  (The increased wind output isn't just in MISO either, it is big in SPP and ERCOT)

Western Canada Finishes January Trending Higher in NG Production, Storage Lower

Alberta's TC Nova system exited January at 11.3 BCFD in pipeline receipts, which was comparable to 2016 and resulted in a monthly average of 11.1 BCFD, which was about 0.1 BCFD below last year.

In 2016, the system reported its annual high production in February, exceeding 11.4 BCFD.  The higher rig count over the past year should help 2017 beat that production average if weather is cooperative.  

Stronger demand, both for exports and domestic consumption, has led to larger storage withdrawals this January vs last.  The month ended with 33.3 BCF withdrawn, vs 21.3 BCF last year, resulting in a diminution of the surplus in storage with which the year began.

The close up view:

Heating Degree Day Comparisons

Gas prices have been struggling this month, with warm weather the chief culprit.  How is the current winter stacking up?  Well, the HDD count from Oct 1 through Jan 31 (next 4 day forecast assumed correct) puts this winter ahead of last winter by a 52 HDD margin.  

But we are behind the 20 year mean by a solid 299 HDD, which represents a tremendous amount of heating and electric load for natural gas.  I'm using the CPC numbers for gas-utility weighted HDDs in the calculation.  This suggests that gas could be very, very expensive had the weather been close to the mean, perhaps aiming toward a sub 1 TCF storage carryout in March/April.  That's a number that would light a fire, so to speak, under the Henry Hub forward strip.  

Here is the same data as a cumulation:

Rig Counts: Oil Rigs Down 7, Gas Gains 1. Sharp Rise in Canadian Oil & Gas Drilling Activity

Holiday effects might be dampening the upward trend in US oil drilling, which was down 7 this week.  As for major basins, Barnett lost an oil rig, Eagle Ford gained 1, Granite Wash lost 1, Permian gained 1, Williston lost 1.

Gas rigs were up 1.  Nonmajor plays added 5, so the net effect was a decline in drilling potential.  Utica and Marcellus each lost 1 rig.  Haynesville and Eagle Ford both lost a single gas rig as well. 

Canadian rig counts surged on post holiday seasonality, pushing both counts to the highest in almost two years:

Henry Hub Comparisons

Just a quick reminder that Henry Hub Spot Price went below $2 in mid-Feb, and didn't recover above $2 until June.  That's going to make the coal vs gas competition a very different equation this year:

Gas to Coal Switching: Reducing Gas Demand By More Than Expected

With each day that gas prices remained elevated compared to last year, the short term effects of hedging, contract commitments, and other temporary factors wear off, and we begin to see the fundamental economics for power generation.  Yesterday ERCOT reported it's fuel mix for December, and natural gas lost more than 1.3 BCFE per day to coal.  

In MISO, the numbers reveal themselves daily, and the impact is also more than 1 BCFE per day.  This suggests that the total impact of switching must be in the 5+ BCFE per day range nationwide.

Here's a look at the daily effects in MISO.  First of all, we see that the daily thermal power demand in December was comparable, year on year.  To wit, it was about 364 BCFE in Dec 2015, and 370 BCFE in 2016.  Close enough for government work:

 

That thermal generation demand was split between Natural Gas and Coal as follows:

Texas Drilling and Completion Activity in December: Oil Gains, Gas Loses

The Texas Railroad Commission reported December drilling, completion, and permitting activity today.  It showed a sharp increase in well permits, and a rise in reported new oil well completions.  Gas completions, however, hit a new low at just 75 new wells:

Oil completions rose from 264 to 384, along with oil rig counts and prices:

Alberta Natural Gas Production and Storage Remain Tight Year-on-Year

Whether due to cold weather or other variables, the step-down in TC Nova natural gas output in the new year continues.  After hitting a one day peak above 11.5 BCF, output has been averaging about 10.9 in January.

Higher demand, and exports to the US, are pulling more from storage, and the 50 BCF surplus that began the year is shrinking steadily.  Daily withdrawals have been more than double prior year amounts, resulting in a 7 BCF reduction in the surplus through nine days of January:

Rig Counts: Oil +4 Gas +3

Rig counts rose modestly this week, according to Baker Hughes.  Both oil and gas rigs continued the trend lines established last summer.  Oil rigs rose by 4 to 529, with gains in the Permian (+3) and Eagle Ford (+1).  

Gas rigs rose by a net 3, with major basins gaining:  Haynesville (+2), Utica (+1) and Marcellus (+1).

In Canada, the post holiday drilling recovery began in earnest, with oil rigs up 29 this week after falling by 54 in the prior week.  Gas activity was stronger, with a bounce to a new year high.  Gas rigs were up +23 to 123 after falling by 13 last week:

Alberta Natural Gas Production and Storage Continues Tighter Than 2016

Four days into the new year, production on the TC Nova system in western Canada is lagging 2016.  It has averaged 11 BCFD in the first four days of the year, about 200 MMCF lower than 2016.  Production typically picks up steam through the winter, as the holiday effect on drilling and completion wears off, and frozen earth facilitates production activity.  

Here are the daily receipts on TC Nova:

And here is a view of the entire 2016 daily activity and monthly averages, showing seasonality, daily variability, and the beginnings of 2017:

Alberta Natural Gas Production and Storage Tighten in 2017

Cooler weather and the end of the holidays has seen the Alberta TC Nova system reporting reduced production volumes and larger withdrawals from storage compared to last year in the early days of 2017.

High daily receipts, near 11.5 BCFD, were seen in the last week of 2016, but the first two days of January averaged 11.1 BCFD, down 0.4 BCFD.  Jan-Feb-Mar are seasonally high months, and the rising rig count should translate into some biennial daily high receipts in the coming weeks.

On the storage front, the withdrawals in the first two days of the year averaged over 1.2 BCF, more than double last year.  Two days does not a trend make, and weather is colder than normal, but the nightmare of last year's excess storage volumes looks unlikely to be repeated (Net withdrawals in Jan-Mar of last year were zero!):

EIA Reports OCT Natural Gas Production

On Friday The Energy Information Administration issued its Natural Gas Monthly Report for October.  Dry production was down 1.18 BCFD from the previous month, to 70.69 BCFD.  That is 3.43 BCFD below the same month in 2015.  

Dry production has been falling faster than gross production, because more liquids are being stripped out.  The percentage of gross production that is being removed as NGLs has been rising, and is up from about 5.3% a year ago to about 5.9% now:

Rig Counts: Oil +2 Gas +3 in Last Week of 2016. Counts Are Now Just About Where 2016 Began.

Another rig count to support the 7 month trend upward in the US.  Oil gains 2 rigs to 525,  and gas up 3 to 132.  Both counts bottomed out in May, with oil rigs showing the more pronounced rebound.  Gas rigs are constrained in the Marcellus and Utica by pipeline capacity, so the rig rebound has been confined to Texas/OK/LA and the DJ basin this year:

Dec 30 Baker Hughes Rig Counts:

December Weather in Continental US Near Long Term Average, Jan Forecasts COLD

Assuming near term forecasts prove reliable, December will finish with about 878 Gas Utility Weighted Heating Degree Days, which is 19 above the 20 year average:

January forecasts look cold through week 1: