U.S. PRODUCTION

Another year of decline

U.S. crude and condensate production fell for the eighth consecutive year, with estimated output down 1.3% in 2000. Alaska was responsible for the entire decline – down a hefty 8.3%. Production from the Lower 48 States actually increased 0.2%. Increased prices, of course, were the main reason, especially when compared to the abysmal lows of 1999.

The best hope for stemming the decline in Alaskan production would be the opening of the Alaskan National Wildlife Refuge (ANWR) to exploration, which is what the new administration in Washington says it plans to do. According to a recent report by USGS, there is a 95% probability that at least 5.7 billion bbl of recoverable oil, and a 5% probability that at least 16 billion bbl of recoverable oil are in the ANWR coastal plain.

Declines occurred in 17 states, while the remaining 14 producing states had gains. After Alaska’s 87,500-bopd decline, Texas was second, with a 20,500-bopd decrease, followed closely by California, with a 19,500-bopd decline. Michigan, Oklahoma, Wyoming and Montana each fell roughly 4,000 to 5,000 bopd.

Absent Alaska, gains more than made up for declines. Louisiana saw a large increase of 46,500 bopd, helped by new offshore production. Kansas was next, adding nearly 15,000 bopd. Mississippi improved its production 5,240 bopd, while Colorado, Arkansas and Kentucky each added between 2,000 and 3,000 bopd.

For 2001, EIA forecasts that Alaskan crude production will rise 53,000 bopd, while Lower 48 production will increase 5,000 bopd. The forecast says that such gains will be temporary, returning to the long-term declining trend in production by 2003.

Near-term tightness in U.S. crude markets has generally kept current prices above future prices, reflecting current strength in crude demand relative to supply. U.S. crude stocks, while tending toward more-normal levels, remained below average. At year-end 2000, crude stocks were nearly 290 million bbl, about 4% below the 5-year average. This implies relatively high oil prices for the near term.

Natural gas. Final estimates for U.S. natural gas production were not yet available as this went to press. However, preliminary estimates indicate that 2000’s annual dry gas production should come in near 18,750 Bcf. This is 127 Bcf (348 MMcfd) more than in 1999.

Coalbed methane production continued to increase, rising another 5% in 1999 to 1,252 Bcf. It accounted for 7% of U.S. dry gas production in 1999, the last year for which reliable data are available. However, 2000 likely saw a further increase, since coalbed methane activity was robust. Development was especially active in New Mexico, Colorado, Utah, Wyoming, Alabama and Virginia.

Rigs drilling for gas hit a low of 362 in mid-April 1999. By year-end 2000, rigs drilling for gas hit a record high of 879. The resulting gas well completions have been expanding production. EIA says it sees some signs of improved gas production capability. For example, Texas expanded its gas production 1.2% through the first nine months of 2000, while Wyoming, the third-largest producing state, increased production by more than 10% during the first eight months of 2000. However, these increased volumes are small relative to the increased demand experienced over the last year. Consequently, Henry Hub spot price for gas finished 2000 at $10.53/MMBtu.