11:20 AM EDT, 04/07/2020 (MT Newswires) -- IHS Markit on Tuesday said it expects falling U.S. oil production due to weak prices will also cut U.S. natural-gas supplies by as much as 10 billion cubic feet per day by the end of next year.
The energy-analytics company said the drop will come as the shut-in oil wells also shut in gas associated with oil production, which, it says, accounts for a third of domestic gas production.
"As oil activity declines and production is curtailed in response to lower oil prices, the associated gas production from those oil wells will also fall," it said in a release. "This massive reduction in gas supply will help offset or even overtake the drop of gas export demand as a result of COVID-19."
IHS said the biggest fall in supplies will come from Texas' high-cost Permian Basin, a shale-oil region that produces 12.9 billion cubic feet per day (bcf/d) of gas along with 4.6 million barrels per day of crude. It expects gas volumes from the region to fall below 10 bcf/d as oil output declines.
The Baaken and Eagle Ford shales, currently producing 7.2 bcf/d along with 3-million barrels per day of oil, will see its gas output drop to 4.6 bcf/d as IHS forecasts oil production from the two regions to drop to 1.8 million barrels per day and 4.6 bcf/d of oil by the end of 2021, while smaller shale fields will also see production drop.
"These are unprecedented times in oil markets, and they will affect U.S. gas markets once the COVID-19 impact subsides, Reed Olmstead, director, North America upstream research, said in a release. "As demand returns, dry gas producers are going to have to step up and fill the supply gap left by reductions in associated gas volumes, and the commodity markets are going to have to make it profitable to drill new wells."