Haynesville gas production rebound looms as upstream drive continues

Gas production from the Haynesville looks poised for a stunning rebound in the months ahead as rig numbers, well drilling and completions hit early shale-era highs.

After reaching a record-high 14 Bcf/d in late December, output from the Haynesville has been on a steady downward trajectory this year, recently dipping to fresh annual lows around 13.1 Bcf/d, data from S&P Global Commodity Insights shows.

The downward production trend comes despite a steady build in upstream activity in the Texas-Louisiana shale play this year – a clear sign that a reversal in the slowdown is likely on the horizon.

Over the past three months, rig deployments to the Haynesville have surged. In late February, the count reached its highest in nearly a decade at 73 rigs – up from just 54 in mid-December, Enverus data shows.

Other upstream indicators are equally bullish.

In February, operators in the play drilled a record 59 wells – the most in any single month dating back to January 2014, according to data from the US Energy Information Administration. Well completions also totaled a near-record 59 in February, EIA data shows, just one shy of the basin's prior monthly record reached in September 2021.

Forwards, IRRs

The upstream drive by Haynesville producers this year promises to boost production there just as forward gas prices edge back toward the $5/MMBtu level and internal rates of return, or IRRs, hit multiyear highs.

Earlier this month, the balance-2022 Henry Hub forward gas curve pushed back above $5/MMBtu but has since eased to around $4.80 in recent trading, S&P Global data shows.

As the forward curve edges back toward historic levels seen earlier this winter, IRRs in the Haynesville have also reached multiyear highs. According to a recent analysis by S&P Global analysts, half-cycle post-tax returns in the Haynesville reached about 46% in February – well above the 30% threshold required to incentivize drilling and completion activity.

Demand

With Gulf Coast LNG export demand trending near record highs and capacity at Venture Global's 10 million mt/yr (1.3 Bcf/d) Calcasieu Pass terminal continuing to ramp up, producers in the nearby Haynesville shale are well position to benefit.

In March, US LNG feedgas demand has averaged nearly 12.7 Bcf/d marking its highest monthly average on record At the Calcasieu Pass terminal, flows have averaged about 550 MMcf/d in March, S&P Global data shows. Over the coming months, feedgas deliveries to Calcasieu Pass could grow by another 600 to 700 MMcf/d as the terminal approaches capacity.