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Upward revision to shale gas output peak larger than projected August decline

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Essential Energy Insights - February 2021

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021


Upward revision to shale gas output peak larger than projected August decline

Shaleproduction of natural gas is expected to drop for a sixth consecutive month inAugust, but the size of the decline is small compared to an upward revisionmade to the record peak set earlier in the year. Shale production of crude oilshould fall in August, albeit at a slower rate than in July.

Thelatest installment of the "Drilling Productivity Report" published bythe U.S. Energy Information Administration on July 18 showed that total output ofnatural gas across seven key shale plays is likely to fall 417.68 MMcf/dsequentially, or 0.9%, to 45.72 Bcf/d in August. Production for the month wouldbe 0.6% below the same month a year earlier, and is the first year-over-yeardecline reported during the current down cycle.

Productionin July was revised up by 390.34 MMcf/d to 46.14 Bcf/d from 45.75 Bcf/doriginally reported. A revision was also made to the peak in output reached inFebruary, which the EIA now says was made at 48.71 Bcf/d and compares to the47.75 Bcf/d reported in the previousDPR.

Revisionsfrom the EIA have been significant in recent months. The agency that a peakwould be formed in April 2015 at 45.99 Bcf/d, according to the DPR that waspublished on April 13, 2015. That level is only 270 MMcf/d above the expectedAugust production rate.

Productionof natural gas is anticipated to fall sequentially in six of the seven playscovered by the DPR. On a volume basis, the Eagle Ford remains the play showingthe largest declines, with a sequential drop of 209.22 MMcf/d in August, whileoutput from the Eagle Ford also falls the most on a percentage basis with adrop of 3.5%. Production in the Utica will likely rise 4.76 MMcf/d, or 0.1%,from July.

Whileshale resources and production are found in many U.S. regions, the EIA's DPRfocuses on the seven most prolific areas, which are located in the Lower 48. Theseseven regions accounted for 92% of domestic oil production growth and alldomestic natural gas production growth during 2011-14, according to the EIA.

Crudeoil production has declined more steadily since a peak was made in March 2015although the sequential rate of declines has increased somewhat in 2016.

Augustwill mark the 16th decline in the last 17 months and will be the 10thconsecutive, according to the EIA.

Oilproduction from shale resources is expected to decline 99.31 Mbbl/d in Augustfrom the previous month, or about 2.1%, to 4.55 MMbbl/d. The decline would putoutput at 14.0% below the same month a year earlier and at the lowest levelsince May 2014.

Datafor July was revised down by 69.68 Mbbl/d to 4.65 MMbbl/d from 4.72 MMbbl/dreported initially. The record peak made in March 2015 was revised down 24.53Mbbl/d from what was reported in the previous DPR.

Shaleoil production is expected to fall in all seven of the shale plays tracked bythe EIA in August.

TheEagle Ford is expected to fall the most on a volume basis with a sequentialdrop of 48.02 Mbbl/d in August, and the play also leads on a percentage basiswith a decline of 4.3%. The Bakken may fall the second most on a volume andpercentage basis with a drop of 31.88 Mbbl/d, or 3.2%, from July. The Uticashould fall the least, with a projected decline of only 283 bbl/d.

Market prices and includedindustry data are current as of the time of publication and are subject tochange. For more detailed market data, including powerand naturalgas index prices, as well as forwardsand futures,visit our Commodities Pages.