Western rebound: gas production recoveries in the Permian and Rockies
Gas production across Western US basins has been rebounding over the last several months following producer shut-ins in response to the market crash. Even as shut-in gas starts flowing again, there is still a high amount of uncertainty for production into spring 2021.
We expect gas production shut-in as a response to low oil price in Q2 2020 to be back online this fall. But producer timing to activate drilled but uncompleted wells (DUCs) will be a key factor in determining the overall production landscape in the coming months, and different basins will continue to show different recovery trends. To help navigate the continued market risk, we track and forecast gas production, monitor real-time production flows, and predict acute impacts from pipeline maintenance.
Western production outside of the Rockies is dominated by the Permian Basin, which saw massive declines in April and May. Permian production had grown fairly steadily for years through the end of 2019. In Q1 2020, growth slowed and average daily production volumes began to level off around the 12.75 Bcf/d mark. However, the market crash sent daily Permian production volumes back to mid-2019 levels around 11 Bcf/d. Since then, our real-time flare tracking data has suggested that all price-related shut-in production in the Permian has since come back online.
The main near-term uncertainty around Permian production growth now centers on the timing and rate of DUC completions. Also, short-term maintenance on Permian export pipes will continue to affect production and basis prices on a day-to-day, week-to-week basis.
Rockies regional rebounds
For the Rockies overall, production reached a recent low in May 2020, when it came in at just 89% of its 2019 average. Since then, it has posted steady month-on-month increases, and in August it is back up to 96% of its 2019 mark. However, we expect these gains to slow and ultimately retreat through the rest of 2020. We are forecasting total Rockies production to fall back down to 93.5% of 2019 levels by this coming December based on current forward prices.
Throughout not only the Rockies but the West as a whole, the most extreme fluctuations in production by basin this year have occurred in the Bakken. Production had grown to 115% of 2019 levels by March 2020, but came crashing down to just 72% by May, a 43% swing in just two months. It is now running back at 104% through the first part of August 2020. In terms of daily average production, the Bakken bottomed out earlier this spring at ~1.4 Bcf/d and has since increased to ~2.0 Bcf/d.
We are forecasting the recovery in Bakken production to slow somewhat through the rest of this year. This region is one example of our general expectation that relatively lower production this fall will be the outcome of fewer well completions and Q2 deferral decisions.
Production in the Denver-Julesburg (DJ) basin decreased sharply this spring but has not fallen below its 2019 average in 2020. This is largely a result of the DJ’s relatively steady production growth throughout 2019 and Q1 2020, thanks to the addition of gas plant processing capacity. The Cheyenne Connector pipeline also began service in late June, giving existing DJ molecules an additional export route on the Rockies Express Pipeline. However, based on forward prices and recent rig activity, we are not forecasting DJ production to return to recent highs for quite some time.
In other Western basins where gas production had already been in decline before the market crash, production was less drastically affected in April-May relative to regions showing prior growth. For example, the Greater Green River Basin (GGRB) in southwestern Wyoming produces a much greater proportion of non-associated gas compared to the Bakken or the DJ, making it more insulated against oil price movements. GGRB production has been contracting since 2018, a trend that continued this year.
Likewise, production from the Piceance and Uinta basins in western Colorado and northeastern Utah was not as sharply impacted through the market crash, and we continue to forecast steady declines vs. 2019 benchmarks for the remainder of the year.
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