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Highlights

30-day average dips to 91.8 Bcf/d, down 1.7% from record

Appalachia leads decline in dry gas output, drilling

New York — US natural gas production has retreated from record-high levels over the past month as operators dial back on drilling in response a progressively weaker outlook for gas prices this year.

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Over the past 30 days, US production has averaged 91.8 Bcf/d, down about 1.7% from a single-day record high at 93.4 Bcf/d in November and an average 92.3 Bcf/d during the same month, data from S&P Global Platts Analytics shows.

The largest decline has come from Appalachia where month-to-date output at 32.7 Bcf/d is down more than 1 Bcf/d from record highs seen during the fourth quarter.

Gas production in the Haynesville in North Louisiana has also sputtered recently, averaging 12.2 Bcf/d in January, down about 500 MMcf/d from a late-November high.

The slowdown in production tracks a prior and steady decline in rig count – particularly in US dry basins.

In the Marcellus and Utica, the combined count dropped to 48 earlier this month , a decline of 35 from a multiyear high in March and the lowest in over three years, drilling data from Enverus shows.

The Haynesville has witnessed a similar decline in activity with the rig count there also estimated at 48 in early January, down from a 2019 high of 66 rigs.

PRICES

Stalled drilling and production figures likely reflect growing concern over the current and forward price environments, which have tested producers' capacity to break even at the wellhead.

In late December, cash prices at the US benchmark Henry Hub briefly dipped below $2/MMBtu and have averaged just $2.13/MMBtu over the past month.

For producers in Appalachia and the Haynesville, though, gas prices at the wellhead have been even weaker. At Dominion South, cash prices have averaged just $1.78/MMBtu, and at Carthage Hub they have averaged $1.98/MMBtu over the past 30 days.

In the Marcellus, average wellhead breakeven prices are currently estimated at $1.80/MMBtu; breakevens in Utica are even higher at $1.94/MMBtu. In the Haynesville, an average producer would require a wellhead gas price closer to $2.50/MMBtu in order to break even, data from Platts Well Economics Analyzer shows.

Forward markets are betting that the current lower-price environment is likely to endure too. At Henry Hub, the balance-2020 curve is now priced at just $2.27/MMBtu, down from $2.58/MMBtu as recently as November. Realized forward prices for many producers are even lower.

OUTLOOK

As gas prices continue to languish near the $2/MMBtu level, many producers – particularly those in Appalachia – are calling for a slowdown or even a pause in drilling activity this year.

On recent third-quarter earnings calls, chief executives from major Appalachian producers including Southwestern Energy, Cabot Oil & Gas and Range Resources told investors and analysts that they would keep drilling and production at maintenance levels in 2020, with some even saying they might stop activity altogether if necessary.

According to Platts Analytics, Appalachian gas production should remain roughly flat this year at levels below 34 Bcf/d. At the US level, though, continued growth in associated gas volumes should help to lift total domestic output by about 1.6 Bcf/d this year.