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Production ready to match anticipated surge in US gas demand, analyst says

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Production ready to match anticipated surge in US gas demand, analyst says

Withboth oil and gas prices improving, the United States energy market could bebuilding a scenario that enables a surge in natural gas production over thenext several years.

Speakingat the 8th Annual S&P Global Energy Symposium, S&P Global Platts SeniorAnalyst for Energy Luke Jackson said the rebound of oil prices to above $40 perbarrel and gas prices to near $3/Mcf has rig counts increasing around thecountry, including two of the largest dry gas plays.

"Rigsare moving back into the Big 5 oil plays [the Permian Basin, Eagle Ford Shale,Bakken Shale, Scoop/Stack Play and the Powder River Basin] with the mostpronounced being in the Permian," he said. "In the Northeast, theUtica has added seven rigs and the Marcellus has added 11."

Indicationsof increased activity go beyond rig counts and show in the drop in drilled butuncompleted wells. Numbers of uncompleted wells have dropped noticeably overthe past several months, with the Permian leading the way with a decrease of544 uncompleted wells, according to Jackson. Still, large numbers remain,including 1,235 in the Permian and more than 800 each in the Bakken and EagleFord. If brought online, Jackson said, they could bring a spike in gasproduction.

"Intotal, 3,200 exist in those Big 5 oil plays alone … We're looking at 6 Bcf/d to9 Bcf/d of associated gas production if all those came online at the sametime," he said.

Jacksonsaid most projections show gas production remaining flat through 2016, butincreasing by as much as 2 Bcf/d in 2017. As much as 1.5 Bcf/d of that amount,he said, could come from the Northeast.

Insteadof causing another supply glut, Jackson said, new markets are beginning to openfor natural gas. The analyst described power demand for gas as being"incredibly robust" in 2016, as more plants switch to gas from coal.Another source of increased demand is Mexico, which increased its imports ofU.S. gas by 47% to 2.8 Bcf/d in 2016.

"Muchof what's driving that increase is the power sector in Mexico switching awayfrom fuel oil to cheaper natural gas," Jackson explained. "[Mexican]natural gas production is down significantly, down 1 Bcf/d [in the] last sixyears, and U.S. imports are helping fill the void."

By2021, he said, U.S. gas imports to Mexico could be as high as 6 Bcf/d.

Anotherarea of potential growth is LNG exports, where Jackson said far more takeawaycapacity has been built than will likely be needed, but American producers willstill benefit.

"Intotal, we're tracking about 10 Bcf/d of LNG export capacity, but we'reconsiderably underutilizing what's been built out," he said. "Itcould reach 6 Bcf/d by 2021."

S&P Global Platts andS&P Global Market Intelligence are owned by S&P Global Inc.