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Search for liquids pushes US gas output higher

Production has risen for a sixth consecutive year, as demand also increases

US natural gas production grew for the sixth consecutive year, registering the largest year-on-year increase for nearly three decades.

Total marketed production grew 7.9% in 2011 to 66.2 billion cubic feet a day (cf/d) despite falling rig counts, with most additional output coming from the Haynesville, Marcellus, and Eagle Ford shales, according to the US Energy Information Administration (EIA).

"Production gains continued despite falling prices, as producers continued to capitalise on more efficient drilling technologies and target wet gas," the EIA said in its Natural Gas Year-in-Review report.

"Additionally, a number of other factors helped to buoy production, including foreign joint-venture partners financing production, increases in natural gas production associated with oil production, and drilling required for producers to hold leases."

The number of natural gas rigs averaged 887 in 2011 compared with 943 last year, Baker Hughes data showed. The number of oil rigs also overtook gas rigs by the end of 2011, with drillers attracted to rising crude prices compared with falling gas prices.

Henry Hub gas spot prices fell to $3.98 per million British thermal units (Btu) in 2011 from an average of $4.37/m Btu in 2010. Meanwhile, average US WTI spot crude rose to $94.88 a barrel in 2011 compared with $79.48/b in 2010.

"Throughout 2011, natural gas rigs have increased in key areas where NGLs (natural gas liquids), lease condensate, and crude oil production occurs, such as the Utica Shale in Ohio and the Eagle Ford shale in Texas," the EIA said, citing Smith Bits data.

It also said increased overseas investments boosted production, with the five largest joint-venture deals totalling $3.7bn.

US demand for natural gas also increased. Overall consumption rose 1.7bn cf/d with gains particularly strong in the power generation and industrial sector, with coal losing out.

"Use of natural gas for electric power generation continued its overall upward trend, as natural gas prices fell both in absolute terms and in relation to coal prices, providing an incentive for fuel substitution," according to the report.

Gas demand for electricity and industrial use were both up by 600m cf/d year on year. The chemical and petrochemicals sector would also likely take advantage of cheap gas and increase consumption.

"The chemical industry also uses natural gas as an input, or feedstock, in the manufacture of certain chemicals and products such as hydrogen, nitrogenous fertiliser, and methanol," the EIA said.

"Lower natural gas prices have allowed some fertiliser plants to boost production, with at least one stating that the shift in production costs will lead to plant expansions. Moreover, the recent boom in natural gas production from wet plays (those with high liquids content) has been accompanied by record-breaking NGL production, which has led to greater petrochemical cracking of NGLs."

Gas storage levels also hit record highs in 2011, with injection season also lasting a month longer than usual. Inventories reached an all time high of 3,852bn cf for the week ending 18 November, with most of the injection coming after 31 October, past the end of the usual injection period.

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