WTI Futures Above $56 -- November 6, 2017

Active rigs:

$56.04↑	11/6/2017	11/06/2016	11/06/2015	11/06/2014	11/06/2013
Active Rigs	55	37	64	190	181

RBN Energy: natural gas supply to increasingly compete for pipeline capacity, demand.

The bottom line is that if transportation or demand constraints — or both — develop, it will precipitate some fierce competition between supply regions and, inevitably, lower gas prices. That becomes an issue for dry gas basins that don’t have crude oil or natural gas liquids to economically make up for lower gas prices, while basins with crude and liquids content, like the Permian and SCOOP/STACK, would be just fine, assuming crude prices hold up at that $50-something level. In other words, if constraints in the gas market get bad enough and gas prices get low enough, but crude producers continue to drill, then associated gas from crude-focused plays could squeeze out gas-dominant basins like the Marcellus/Utica and Haynesville.

If we put it all together, what the various arrows amount to is a train wreck of regional gas surpluses, with Marcellus/Utica, Rockies, Permian and SCOOP/STACK gas all fighting for capacity into the Gulf Coast export market. . But there is simply not enough pipeline capacity to make that happen. In other words, the market is in for a new round of capacity constraints, and until those bottlenecks are relieved by new pipes — such as projects in the works for moving Permian and STACK/SCOOP gas down to the Gulf — regional markets outside the Gulf Coast are bound for persistent weakness. The producer problem of weak basis differentials (the difference in regional prices and the national benchmark price at Henry Hub in Louisiana) in most of the growing gas basins is likely to stick around for at least another couple of years.

Happy November 6th: