ANALYSIS: Potential wellhead freeze-offs could further reduce Appalachia natural gas production

Widespread declines in gas production across Appalachia this month, likely tied to colder weather, could accelerate over the next week as forecasters predict another plunge in temperatures ahead.

Month to date, combined output from the Marcellus and Utica shales has averaged just under 32.8 Bcf/d and is down nearly 2%, or about 600 MMcf/d, compared with levels recorded in second-half January, data compiled by S&P Global Platts Analytics shows.

The recent drop in production has accompanied an influx of sustained colder weather this month, likely causing wellhead freeze-offs that are to blame, at least in part, for the recent production decline.

In parts of Ohio, Pennsylvania and West Virginia. Temperatures have dipped into the mid-20s Fahrenheit this month and are likely to remain there over the next week.

Much of the recent drop in Appalachian output has come from the Northeast Pennsylvania Dry window. In late January, temperatures in the nearby metro area of Scranton dipped below freezing, triggering a sustained drop in production there. From Jan. 25 to date, sample output from Northeast Pennsylvania has averaged 11.1 Bcf/d – down about 300 MMcf/d compared with levels in the 30 days prior.

The remainder of Appalachia's production decline has come mostly from Ohio, where combined output has fallen about 300 MMcf/d since Jan. 25, compared with the month prior.

Weather forecast, prices

Over the next 14 days, the Northeast population-weighted temperature is forecast to drop from 35 degrees on Feb. 5, to 25 degrees F on Feb. 8. Following a brief warming spell in the second week of this month, temperatures are forecast to turn sharply colder again, falling to just 21 degrees by mid-February.

As residential-commercial end-users dial up their furnaces, lifting gas demand toward seasonal highs, more wellhead freeze-offs could stymie regional production, just when it is most needed.

As supply begins tightening, cash and forwards prices in Appalachia have already begun rising. At Dominion South, the spot market rallied nearly 50 cents in Feb. 5 trading, settling at $3.19/MMBtu. In February alone, the benchmark Appalachian price has already climbed 83 cents, or 35%, preliminary settlement data from S&P Global Platts data showed.

In the forward market, Dominion's balance-of-month contract ended trading Feb. 4 at $2.96/MMBtu, with unpublished prices from Feb. 5 trading likely to be sharply higher by market close.