The steady growth in US natural gas production seen earlier this year appears to have lost momentum this summer in a potentially bullish trend that comes as Henry Hub gas prices retreat back to $8/MMBtu.
In July, domestic production hovered at just under 94.7 Bcf/day, roughly unchanged from the previous month’s average, data from S&P Global Commodity Insights showed. In March, April and May, US production surged, climbing more than 3 bcf/day, or nearly 3.5%, to yearly highs of over 95 bcf/day.
This spring’s production gains, coupled with an increase in drilling activity, fueled speculation among some market observers that US production growth would remain at a steady pace throughout the summer.
There was good reason to believe that this would be the case.
Since January, the US oil and gas industry has returned nearly 150 drill rigs to the field in a steady build that has been accompanied by gains in wells and completions. For the week ended July 20, the number of rigs in the U.S. was estimated at 855, or the highest since late 2019, according to data from Enverus.
Among the largest U.S. shale basins — including Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara, and Perm — the number of wells drilled monthly has increased steadily over the past two years, totaling 938 as of June or the highest since the pandemic, US Energy Information Administration data shows.
After bottoming out in the second quarter of 2020, the number of monthly well completions in the Big Seven Basin group has also increased, with a total of 964 in June – just below the pre-pandemic pace when completions trended closer to 1,100 per month, show EIA data.
Production outlook, prices
This spring, as US production and drilling activity ramped up, projections from Platts Analytics predicted production would average comfortably above 95 Bcf/day through mid-summer. However, the growth forecast by many analysts and market observers did not materialize.
While yet another wave of production growth is expected towards the end of the fourth quarter, when production is forecast to exceed 97 Bcf/d, gas futures markets seem increasingly doubtful that the expected growth will materialize – or that earnings may not be enough to support it current high to dampen prices.
Over the past week, Henry Hub’s prompt month futures contract is up more than 20%, or around $1.30-$1.40/MMBtu. The short-term price expectation of now $8/MMBtu comes despite an ongoing production outage at the Freeport LNG terminal. In early June, the announcement of the outage appeared to send the US gas market into a correction, sending gas prices below $6 from highs near $10/MMBtu earlier this month, Platts data shows.
However, growing market concern about the state of the US gas supply extends well beyond the summer. Even the September and October contracts are now close to $7.80/MMBtu – mid-season months when both production and gas storage often surge ahead of winter.
Source: Platts
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