Welcome to the shale revolution

U.S. natural gas production continues to set records even with fewer rigs than in 1998, thanks to advanced shale drilling

By Mark J. Perry 

The chart above shows something really amazing: The number of rigs drilling for natural gas in the U.S. fell in July to 522 (see red line), which is below the level back in January 1998(608), and since then the rig count has fallen further to only 437 last week, the lowest since 1996 (Baker Hughes data here).  As recently as 2008, there were almost 1,600 natural gas rigs in the U.S. so the current rig count today is more than 70% below the peak.

Meanwhile, the production of natural gas in the U.S. keeps climbing, and the 12-month moving average of gross withdrawals of natural gas reached a record-high level in July (see blue line,data here).  Compared to 1998, the U.S. is now producing 25% more natural gas with fewer rigs, so there have been some amazing gains in productivity and efficiency for gas drilling.

In today’s Financial Times, energy editor Ed Crooks investigates this interesting trend, here’s an excerpt:

More important for some industry executives and analysts is a structural reason for strong gas output: improvements in production techniques.  The shale revolution was made possible by advances in hydraulic fracturing and horizontal drilling, and both techniques have continued to evolve.

Five years ago, horizontal wells would typically extend 1,000-2,000 feet sideways from the well head. Now they regularly run for 5,000 feet. Continental Resources, another independent company that specializes in shale oil production, has extended wells more than 15,000 feet.

“You can open up the reservoir more to produce more gas,” says Matt Jurecky at GlobalData, a consultancy. “It’s more efficient and lower cost.”

Bottom Line: There are other factors discussed in the article that could help explain the disconnect in recent months between the decline in rigs and the ongoing increases in gas production, but the underlying trend in the graph over the last four years is very clear.  Compared to the summer of 2008 when the rig count peaked, the U.S. is now producing 16% more natural gas with only about one-third of the rigs.  That’s an amazing and historically unprecedented surge in drilling productivity over such a short period of time, and has come about as a direct result of the significant advances in recent years from the cutting-edge drilling techniques known as hydraulic fracturing and horizontal drilling.