In January, 40% of natural gas production in North Dakota went to waste.
You read that right. 400 million cubic feet of natural gas was lit on fire and burnt. But that’s peanuts compared to how much total natural gas goes to waste every year in the U.S.
And it’s why I see natural gas prices being low this year…
Longtime Growth Stock Wire readers know about the U.S.’s booming oil production in shales like North Dakota’s Bakken and Texas’ Eagle Ford and Permian Basin.
[ad#Google Adsense 336×280-IA]Natural gas is a byproduct of oil production…
And the shale plays are producing more natural gas than oil companies know what to do with.
As I told you last week, natural gas production is rising every year.
According to the U.S. Energy Information Administration, natural gas production will grow 2.5% this year and another 1.1% in 2015.
The overabundance of supply has kept prices low. And with natural gas prices so low, oil and gas companies have been slow to build the infrastructure to transport all the natural gas.
That’s what happened in North Dakota earlier this year. There were too few pipes and not enough processing capacity. That’s true in many parts of the U.S.
I remember visiting the Eagle Ford Shale in Texas in 2010 and seeing natural gas flares over practically every hill. “Flaring” is when wasted natural gas is safely burned off.
The table below shows the difference between the gross production and marketed production of natural gas in the U.S. That’s the volume of gas produced from wells and the volume sold. After removing some other gases, the difference between the two is wasted natural gas. The final row shows the percentage of marketed production that was wasted.
As you can see, we wasted 3.8 trillion cubic feet of natural gas in 2013. That’s 15% of the volume sold. At $4 per thousand cubic feet (MCF), that amounts to $15.2 billion wasted because pipelines don’t exist to take it away.
This is the main reason I don’t see natural gas prices remaining above $4 per MCF the rest of this year.
There is so much supply that we wasted over 10% of our production last year. This is supply that is already being produced. It could easily go right into pipes without drilling more wells.
Until infrastructure catches up to the overabundance of supply, low natural gas prices are here to say. That’s why investors shouldn’t bank on higher natural gas prices this year.
Good investing,
Matt Badiali
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Source: The Growth Stock Wire