US natural gas production estimates dip below 90 Bcf/d amid growing supply concerns

US natural gas production on June 15 was estimated at its lowest level since this winter's historic freeze, underscoring recent supply weakness as the market enters its peak-demand period of summer.

Initial estimates June 15 showed US production at just 88.9 Bcf/d, according to data compiled by S&P Global Platts Analytics. While the final production figure could be revised upward, the data reflects a recent drop in the Permian Basin and the Haynesville and ongoing constraints in Appalachia.

In the Permian, production fell to 12 Bcf on June 15, down from a high at over 12.7 Bcf/d earlier this month. In the Haynesville, production dipped to 12.4 Bcf, off from an earlier June high at 12.9 Bcf/d.

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In Appalachia, declines spread across the tri-state area cut output to 33.3 Bcf, down from recent levels closer to 34 Bcf/d as restrictions on Texas Eastern Transmission continue to limit upstream receipts.

In all three locations, production remains within striking distance of pre-pandemic levels as the outlook for the US upstream industry has continued to improve. Still, the drop in total US production below 90 Bcf/d, underscores the continued tightness in domestic supply that comes as a larger share of post-pandemic production becomes concentrated in just a handful of the most-profitable basins.

Laggard basins

In basins like the Eagle Ford, the Denver-Julesburg, the SCOOP-STACK and in the offshore Gulf of Mexico, gas production this year remains sharply lower compared to pre-pandemic levels, raising questions about the potential for output to stage a meaningful recovery in these locations.

In the Eagle Ford, where the rig count remains at less than half of its pre-pandemic high, month-to-date output has averaged just 4.8 Bcf/d – about 850 MMcf/d below its January 2020 level.

In the Denver-Julesburg, output is down about 250 MMcf/d over the same period as questions loom over the longer-term impact of Colorado's 2,000-foot drilling setback which took effect earlier this year.

In the SCOOP/STACK, where many operators have been frustrated by varying rock quality and unpredictable returns, production this month remains about 550 MMcf/d below its January 2020 level.

A steady long-term decline trend in the offshore Gulf of Mexico is likely to blame for weaker production there, which is also about 550 MMcf/d below its pre-pandemic level, Platts Analytics data shows.

In all four locations, production this year has shown little or no aptitude for growth that could restore the basin's output to pre-pandemic levels. According to a recent forecast from Platts Analytics, production from the aforementioned basins will remain flat to modestly lower over the balance of 2021 with output from the SCOOP/STACK and the US Gulf of Mexico likely to enter a steady but prolonged decline.

Market outlook

Continued supply weakness in the US market is promising to keep benchmark Henry Hub gas trading comfortably over $3 this year amid strong domestic and export demand.

Earlier this month, cash prices edged past the $3 mark where they've remained as summer cooling demand begins heating up. Longer-term gains in export demand from LNG terminals and pipelines that deliver to Mexico is keeping the near-term outlook bullish too. At market settlement June 14, the Henry Hub rolling 12-month forward curve settled at an average $3.31/MMBtu for calendar-month price through May 2022, S&P Global Platts most recently published M2MS data shows.