EIA Short Term Energy Outlook: Renewables Trivial; Coal Resurging; Natural Gas Production Will Actually Accelerate -- August 8, 2017

Updates

Later, 12:18 p.m. Central Time: see first comment --

Recent round of conference calls from Appalachian Basin operators validate the ongoing advances in processes that indicate enormous continuing efficiencies.

Rice described how they drilled and completed 19 wells simultaneously on 4 adjacent pads with 4 rigs, just like Encana is doing in the Permian.

Rice said it was the future model for Marcellus production.

Original Post 

Re-posting.

The current EIA short-term energy outlook is so interesting, it needed to be re-posted. I am only posting portions of the summary; the full summary is here.

***********************************

Key Points

EIA Short-Term Energy Outlook

Oil Markets:

• The forecast calls for U.S. oil production rising over the next two years, with oil output heading for an all-time high of just over 9.9 million barrels per day in 2018, surpassing the old record set in 1970.

Gasoline/Refined Products:

• U.S. consumers are buying record amounts of gasoline this summer, even though pump prices are higher than last year.
• A growing economy and more people working are major contributors to higher gasoline consumption this summer.

Natural Gas:

• U.S. natural gas production growth is expected to accelerate over the next two years with growth rates over 2% in 2017 and over 5.5% in 2018.

Electricity:

• Coal-fired power plants are expected to be the leading source of U.S. electricity for the next two years, as the cost of coal is expected to rise by less than the cost of natural gas and renewable generation continues to grow.

Coal:

• U.S. coal production is getting a boost in 2017 from higher coal exports and more coal-fired electricity generation. (Coal certainly is getting a boost.)

Renewables:

• U.S. wind power, which provided 6% of total U.S. electricity in 2016, is expected to have a 9% generating capacity increase this year and another 16% in 2018. (1.09 x 6 = 6.54%)
• Solar power, which provided 1% of total U.S. electric generation in 2016, is expected to see the largest rate of growth in utility-scale electricity generating capacity of any energy source, increasing 36% this year and more than 10% in 2018. (1.36 x 1 = 1.36%; 1.36 x 1.1 = 1.5% in 2018)

**************************************

"Terrifying"

Look at the EIA outlook regarding US natural gas production (from above):

• U.S. natural gas production growth is expected to accelerate over the next two years with growth rates over 2% in 2017 and over 5.5% in 2018.

Now, look at this, from Barron's (this sent to me by a reader; much appreciated):

The average gas initial production or IP rate of wells is up 34% year-over-year compared to a 7% compound annual growth rate in the 2012-to-2015 period, noted Alliance Bernstein analyst Jean Ann Salisbury. Gas well efficiency improvements are "terrifying," she said, in a report published this morning. Expecting that rate to continue would be unrealistic. Salisbury is adjusting her estimates downward to account for high grading, declining IP rates, and lower improvement rates from the shift from oil to gas in the Utica.

I don't think I've ever heard/seen the word "terrifying" used to describe what is currently going on in the oil and gas sector.

This validates the postings of a reader who regularly reminds me how prolific the Utica/Marcellus is turning out to be.

The analyst wrote:

In our updated base case, we forecast rig counts in associated basins slightly below current levels over the next 3 years to remain roughly within cash flow.

We grow Marcellus/Utica rigs by ~25 rigs to fill the coming pipelines by 2020.

With overall improvements in the 5-10% range, this gives us more than enough gas to meet demand to 2020 (+17 bcfd from 2016).

Thus, we think something has to give between associated gas ramp, Marcellus/Utica spending to fill the pipes, and Haynesville rigs staying flat …. it's probably the Haynesville first, but will do a deeper exploration into this.

In general, this update is even more bearish for our view of gas price, mixed but mostly negative for gassy E&Ps (more production but worse price), and bullish for gassy and NGL-y midstream.

Saudi Arabia and OPEC can probably relate.