America's shale gas supply caught in its longest-ever decline

NEW YORK (Bloomberg) -- America’s shale gas boom hasn’t exactly been booming lately.

Natural gas production from the seven largest U.S. shale deposits will drop for a fourth straight month in October to average 44.784 BBcfgd, the lowest since March, based on an Energy Information Administration forecast released Monday. That’s the longest streak of monthly declines in government data going back to 2007.

The pullback follows a decade of surging gas production that created a glut of the heating fuel and sent prices plunging to record lows in some regions. The biggest declines forecast for October are in oil-rich deposits such as the Eagle Ford shale formation in Texas, where drillers are idling rigs in response to a collapse in crude prices.

Pipeline constraints in Appalachia aren’t helping either. Yield from the Marcellus shale of the eastern U.S., the nation’s biggest gas field, will fall 0.5%, the EIA said.

“Supply will finally fall short of demand next year,” Bank of America analysts led by Sabine Schels and Francisco Blanch said in a report. The bank is forecasting that total output in the lower 48 states will shrink by 0.3 BBcfgd next year.

More than 1 BBcfg production went offline in the second quarter because of limited pipeline capacity and system outages, particularly in the northeastern Marcellus region, Adam Longson, an analyst with Morgan Stanley, said in a note to clients Monday.

Uncompleted Wells

The number of drilled but uncompleted wells jumped almost 50% in January through June from the same period a year earlier, Longson said. While pipeline expansions in the fourth quarter may boost Northeast output, weak prices throughout the region may once again prompt producers to delay well completions, he said.

Natural gas prices have been trading in a narrow range of $2.50 per million British thermal units to $3 since late May. Futures have fallen 30% in the last year.

“Rising financial pressure on producers is our dominant storyline,” Breanne Dougherty, analyst with Societe Generale in New York, said in a note to clients. “Production remains the biggest wildcard — we see production as hinging heavily on the ability of producers to manage their balance sheets through the current sustained weak oil and gas price environment.”