With US focus on shale, associated gas makes up smaller share of total production

Houston (Platts)--25Oct2013/509 pm EDT/2109 GMT


As prices for oil production continue to far outpace those for natural gas, US producers have increasingly turned their efforts to finding the former commodity.

But in the process of developing shale resources, operators have dramatically pushed the levels of domestic gas production above what would have been seen by drilling for dry gas alone, contributing to a continuation of a months-long trend toward lower gas prices and leading to undesirable outcomes such as gas flaring.

According to Platts data, for the month of September the spot price of gas at the Henry Hub in Louisiana averaged $3.6183/MMBtu. Meanwhile, domestic prices for crude oil averaged about $106/d for the same period. Each barrel of oil contains about 5.6 MMBtu of energy, which means a barrel of crude is worth more than five times a cubic foot of gas on an energy-equivalent basis.

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Philip Budzik, an analyst with EIA's Office of Petroleum, Natural Gas, & Biofuels Analysis, said in an email that in the past decade, as shale gas production has assumed a larger proportion of overall US gas production, associated gas has accounted for an increasingly smaller piece of the total.

"The percentage of associated gas has been declining since 2003 (26%) through 2011 (21%) due to the rise in shale gas production," he said.

By 2040, Lower 48 onshore associated gas production is expected to fall to 6% of total Lower 48 onshore gas production, Burdick said.

"Even so, in absolute volumes, projected Lower 48 associated gas production volumes grow until 2020, when tight oil production is expected to peak; and thereafter decline as tight oil production declines," he said.

On a state level, it is difficult to compare production of associated gas, as each state accounts for production slightly differently. Some states do not report associated gas volumes as a separate category, but instead include them in total statewide gas production.

In Texas and Oklahoma, where gas produced in association with oil production is called casinghead gas, producers are required to report casinghead gas production to the respective state regulatory agencies, which in turn make the data publicly available.

In Texas, as oil production has ramped up dramatically over the past several years in plays such as the Eagle Ford Shale and Permian Basin, the production of associated or casinghead gas has also increased its share of the natural gas production pie, while total gas production has increased only slightly.

According to the Texas Railroad Commission, casinghead gas production totaled 696 Bcf, or 1.91 Bcf/d, in 2009 and accounted for 9.15% of total gas production of 7.60 Tcf, or 20.84 Bcf/d. By 2012, output of casinghead gas reached 1.22 Tcf, or 3.34 Bcf/d, which comprised 15.2% of total gas production of 8.03 Tcf, or 21.99 Bcf/d.

Meanwhile, Texas oil production ramped up from about 350 million barrels, or 959,000 b/d, to approximately 593 million barrels, or 1.62 million b/d, over the same four-year period.

"Casinghead gas production is limited based on oil allowable production, and gas/oil ratios for oil wells can range significantly. Casinghead gas production increases with oil production," TRC spokeswoman Gaye Greever McElwain said in an email.

In Oklahoma, casinghead gas has represented a small fraction of total gas production in recent years, but volumetric production of the resource has risen dramatically in the most recent years for which full-year production totals are available, corresponding to a spike in oil production.

According to the Oklahoma Corporation Commission, 2009 saw the production of about 15.99 Bcf of casinghead gas, accounting for less that 1% of the 1.79 Tcf produced in the state that year.

Two years later, in 2011, casinghead gas production increased to about 26 Bcf, or about 1.63% of the 1.55 Tcf produced in Oklahoma that year.

By comparison, oil production in the state increased by about 15% from 66.68 million b/d in 2009 to 76.80 million b/d in 2011.

--Jim Magill, jim.magill@platts.com
--Edited by Jason Lindquist, jason.lindquist@platts.com

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