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article imageShale firms ramping up natural gas output despite shaky market

By Karen Graham     Nov 30, 2020 in Business
Higher natural gas futures prices for 2021, as well as forecasts of a 45 percent jump in gas prices next year, compared to a 15 percent increase for Brent oil, appears to be reason enough for U.S. shale firms to boost gas drilling and production.
The global coronavirus pandemic has hit oil-producing nations hard. The impact on U.S. shale production has been huge. However, with the continuing glut of crude oil on the market, shale gas producers are willing to take a gamble by consolidating to stay viable.
The coalition known as OPEC+, which comprises some of the world’s largest crude producers, begins a two-day meeting Monday that will probably result in a delay in a proposed crude oil output hike. The big question to be answered at the meeting is whether the planned 2 million bpd January production ramp-up will be delayed for three months or six months, reports CNBC News.
According to a research note from Caroline Bain, the chief commodities economist at Capital Economics, “We now think that the oil price (Brent) will stand at $60 per barrel by end-2021." This is partially based on encouraging coronavirus vaccine trial data from pharma giants that could help reopen economies.
And while the price of oil plunged to record lows during the first wave of the pandemic - Brent crude futures now stand at $48.18 a barrel, with U.S. West Texas Intermediate futures at $45.52.
OPEC's ability to steer oil prices has been put in question to an extent never seen before
OPEC's ability to steer oil prices has been put in question to an extent never seen before
What about shale producers?
The U.S. shale industry has been a big thorn in the side of OPEC for the last 10 years, and many analysts suggest that OPEC is loathe to allow them to significantly re-ramp production without increases of its own. This is a key consideration for OPEC's meeting this week.
U.S. shale has been a swing supplier in global markets, taking on more of the market share at OPEC's expense, and the small crude oil rally recently will just add fuel to the shale industry's ramp-up in rig counts. As it stands now, the weekly rig count has seen its 10th increase in the past 11 weeks.
“In the future, certainly we believe OPEC will be the swing producer — really, totally in control of oil prices,” Bill Thomas, chief executive officer of EOG Resources Inc., the biggest independent shale producer by market value, said earlier this month. “We don’t want to put OPEC in a situation where they feel threatened like we’re taking market share while they’re propping up oil prices.”
EOG Resources will start selling gas from 15 new wells from a newly discovered field holding 21 trillion cubic feet of gas. beginning in 2021 reports Reuters.
Continental Resources has shifted its oil rigs in Oklahoma to gas rigs, while Apache Corp says it will be completing three Texas wells shortly.
A natural gas well in the southeast Lost Hills Field  California  US.
A natural gas well in the southeast Lost Hills Field, California, US.
Antandrus (CC BY-SA 3.0)
“Demand has remained pretty robust. Supply has been starved for capital,” said Christopher Kalnin, chief executive of Denver-based Banpu Kalnin Ventures. Last month, they closed a deal to acquire Devon Energy's natural gas assets. Banpu Kalnin has hedged about 65 percent of its gas production for next year.
Consolidation appears to be the answer
The one advantage shale producers have right now in staying alive is to combine their operational capabilities, cut administrative costs, and bet on new acreage that could swing them back into profitability as the market outlook improves.
Andrew Folse, oil and gas analyst at research firm GlobalData, says: “Companies with stronger balance sheets are taking advantage of the opportunity to strengthen their position by buying acreage at a discount. There is a significant acreage in unconventional areas involved. In particular, the Permian Basin remains the most attractive and is involved in all the major deals.”
Earlier in the year, the first signs of the shale-consolidation trend began to appear, with Chevron’s $13 billion acquisition of Noble Energy and Devon Energy’s takeover of WPX Energy. And last month, ConocoPhillips agreed to the $9.7 billion acquisition of rival Concho Resources – a deal that was quickly followed up by Pioneer Natural Resources’ $7.6 billion takeover of Parsley Energy.
More about US Shale firms, LNG prices, jump 45, OPEC meeting, oil glut
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