The report shows that the number of natural gas wells being drilled, primarily in the Pennsylvania shale region, has skyrocketed 265 percent from the second quarter of last year.
The new well data is for exploratory wells that have been drilled in search of natural gas, and have the potential to be producing at some point, said Dean Foreman, the American Petroleum Institute’s chief economist, in an interview with Washington Examiner previewing the second quarter release.
The numbers are a “good sign” of industry health in the current high oil price environment and continued demand for U.S. natural gas exports, said Foreman.
Oil price for Brent crude oil, the most common price measure for oil produced outside of the U.S., closed at around $74 in Thursday trading. The American-based West Texas Intermediate price was lower at around $70 per barrel.
The federal government’s latest reporting projects that Brent oil prices will remain high through the remainder of 2018 at around $73 per barrel, before dropping to around $69 per barrel in 2019.
However, speculators and other analysts are predicting that a lack of surplus supply in the market could drive up prices into the triple digits.
Even the federal government is concerned.
Oil inventories in most Western countries have dropped “below the five-year (2013–17) average and a forecast of low spare capacity among members of the Organization of the Petroleum Exporting Countries (OPEC) create conditions for possible price increases if additional supply disruptions occur or if forecast supply growth does not materialize,” according to the U.S. Energy Information Administration’s July 11 Week in Petroleum report.
But this is not necessarily a bad thing when it comes to drilling. It means the economics are ripe for increasing rig numbers and drilling more wells.
“When you have these exploratory wells … that’s a sign that in the current price environment more acreage is becoming potentially economic,” Foreman said.
“That’s a sign of industry health, in the sense that If the industry is exploring that means it’s reaching to increase its resource base, as well as the potential for development in the future,” he explained.
The natural gas number is huge on the exploratory side, but wells that are actually producing oil and natural gas are also reaching new highs.
“Total completions, overall, [for] oil and gas, are up 60 percent year to year,” said Foreman.
“If we look at development wells, those are up, for [natural] gas, 67 percent by our estimate, for second quarter,” he said. And oil is up 60 percent. “So, really similar whether it’s oil or gas.”
“That’s a sign, a good one, [a] green light, that as prices have recovered this year that you’re seeing more of the shale plays being explored,” he continued.
That also leads toward the so-called “de-risking” of drilling in the shale regions, he said, which can identify where future resources will be coming from.
U.S. natural gas exports are also boosting new drilling, which would not have occurred without the U.S. having the export potential, said Foreman.
Exports are another “green light” to produce more, he said.
Nevertheless, with all these wells being drilled there is a need for more infrastructure, such as pipelines, which is an increasing concern for many in the oil, natural gas, and refinery industries.