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US natural gas production growth to exceed demand increases this summer: NGSA

Highlights

Summer-on-summer daily production growth forecast at 3.6 Bcf/d

Production growth to come in 1 Bcf/d above demand growth

  • Author
  • Kelsey Hallahan
  • Editor
  • Valarie Jackson
  • Commodity
  • Coal Natural Gas

US natural gas production will grow materially this summer comparedi with summer 2021, outpacing increases in demand, according to the Natural Gas Supply Association's 2022 summer outlook.

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The producer association's summer outlook, released May 11, predicted that the supply-demand balance will remain tight, but "production is clearly rising [to] meet this challenge."

NGSA projects that US gas production will come in 3.6 Bcf/d higher this summer than last, with gains expected to come from both associated gas and non-associated gas.

This prediction is about 600 MMcf/d, or 20%, above the 3 Bcf/d of summer-on-summer growth S&P Global Commodity Insights projected in its April 20 US Gas Short-Term Forecast.

Some gains have already been observed, with S&P Global data showing that production has averaged 93.6 Bcf/d so far this May, up 1.2 Bcf/d from the same time last year. Roughly half of the May-on-May increase can be attributed to higher Permian gas production, with higher production also observed in the Haynesville and SCOOP/STACK basins.

Supply versus demand

With US spot and futures gas prices trading at sustained heights not seen in more than a decade, pushed higher by supply concerns, market watchers are keeping a sharp eye on the comparative rate of supply growth versus demand growth during the summer refill season.

The NYMEX Henry Hub prompt-month contract has averaged $7.84/MMBtu so far this month, more than double the $2.95/MMBtu averaged during the same time last year. Prior to this April and May, the prompt-month gas futures contract last settled above $7/MMBtu in 2008.

NGSA expects total US gas demand, including exports, to climb 2.6 Bcf/d this summer, driven almost entirely by higher export demand. Domestic gas demand will increase by just 100 MMcf/d this summer compared with last summer, according to the outlook, with lower gas-fired demand canceling out expectations for higher industrial growth. Residential-commercial demand is expected to remain the same as last summer.

Other recent gas market outlooks, such as S&P Global's US Gas Short-Term Forecast and the Energy Information Administration's Short-Term Energy Outlook, also predict production growth this summer but expect demand growth to exceed production gains. Both outlooks highlighted the potential for stronger gas-fired power demand, with low coal inventories and rail constraints to transport coal expected to limit gas-to-coal fuel switching.

Production gains

One limiting factor for production growth this summer may be continued capital discipline from producers.

US gas producers largely maintained prior commitments to keeping production at maintenance levels in the recent round of Q1 2022 earnings calls. Key priorities included paying down debt, returning cash to shareholders, and regaining investment-grade ratings.

Some executives from gas-weighted exploration-and-production companies also pointed to infrastructure constraints as a barrier to growing production, especially for Appalachia producers. Efforts to build new gas pipelines in the Northeast have been met with legal challenges and costly delays in receiving permits in recent years.

Gas production gains are thus more likely to be seen in associated gas basins, such as the Permian, this summer. While the Permian has wrestled with takeaway capacity constraints in the past, a trio of new intrastate basins that came online in 2020 and 2021 has given the basin some room to grow before reaching the limits.