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ANALYSIS: Haynesville gas production hits record high spurred by strong returns, bullish outlook


Production averaging over 13 Bcf/d in April

IRRs estimated at 15%, rig count near 50

Strong LNG demand forecast for summer

Gas production in the Haynesville Shale is surging into the spring season as operators there respond to strong wellhead economics and a brightening outlook for LNG export demand this year.

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Month-to-date, output is trending at record-high levels over 13 Bcf/d, with gains widely distributed across the Texas and Louisiana portions of the play, data complied by S&P Global Platts Analytics showed.

Recent production strength comes following a steady build in drilling and completion activity over the past seven months. In February, rig count in the Haynesville briefly topped 50, reaching its highest since December 2019. The milestone marks a dramatic turnaround from last summer when the basin's rig count tumbled to a pandemic-fueled low at just 31, recent data published by Enverus showed.

Following a global fallout in commodity prices in first-quarter 2020, drilling activity in every other US shale basin has remained at just a fraction of its pre-pandemic level. While most US operators opt to maximize free cash flow over growth, producers in the Haynesville appear more bullish this year.


Comparatively strong internal rates of return, or IRRs, in the Haynesville are giving producers there at least one good reason to pursue growth this year.

As of March 2021, operators in there are clearing an average 15% return on wellhead production, based on a half-cycle, post-tax analysis from Platts Analytics. While those gains fall short of the 25% to 35% return earned by producers in Permian, they still rank among the highest in North America for a dry gas basin – outperforming Marcellus and Utica IRRs, currently estimated around 8% to 10%.

Higher Henry Hub forward gas prices this year compared to last are responsible in large part for the Haynesville's strong drilling margins. Despite a steady decline in the forward curve since mid-February, the rolling 12-month average price at the Henry Hub still remains in the low-$2.70s/MMBtu, up sharply from year-ago forward-price levels closer to $2.30/MMBtu, S&P Global Platts M2MS data showed.


Given the Haynesville's strategic proximity to the US Gulf Coast, a bullish outlook for LNG export demand this summer is giving producers there another good reason to grow output.

In April, feedgas demand from the Gulf Coast's four LNG terminals, including Sabine Pass, Cameron, Freeport and Corpus Christi, has trended near record-high levels averaging about 10.8 Bcf/d.

With the Platts JKM currently priced in the low-$7s/MMBtu through July, roughly flat to current levels, US exporters should continue to enjoy relatively strong margins to the Northeast Asian market this summer.

According to a recent forecast from S&P Global Platts Analytics, US terminals should continue to operate at over 90% capacity utilization through the summer. Last summer, record-low global gas prices prompted many exporters to defer cargo-liftings, slowing feedgas demand and ultimately shutting-in some US liquefaction capacity.