New York — A once seemingly unstoppable growth trajectory in the Haynesville Shale has come to end in June as a months-long slowdown in drilling activity there finally appears to be taking its toll on production.
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Month to date, modeled output from the Haynesville is averaging just over 12.6 Bcf/d – down nearly 5%, or about 600 MMcf/d, compared to the May average, S&P Global Platts Analytics data shows.
Falling output this month reverses an almost uninterrupted trajectory of growth over the past 36 months that had lifted production to recent record highs at over 13.6 Bcf/d – nearly double average levels around 6.9 Bcf/d in June 2017.
Strong gas production through May appeared to defy a downward trend in Haynesville rig counts and drilling activity that started in early 2019 and began accelerating last October.
On June 4, the Haynesville rig count was estimated at 33 – just above a 42-month low in late May when the number fell to 31, Enverus DrillingInfo's most recently published data shows.
Sample production data collected by Platts Analytics from the Louisiana and Texas portions of the play show roughly equal declines across the basin of 190 MMcf/d and 230 MMcf/d, respectively.
Recent production declines in the Haynesville, which could flatten out and endure through the summer, according to a recent forecast from Platts Analytics, will likely help to support basis prices at Carthage.
In June, cash basis at the East Texas hub has strengthened to a 5 cent/MMBtu discount to the benchmark, up from an 8 cent/MMBtu discount in the month prior, S&P Global Platts data shows.
With current forecasts showing Haynesville production leveling off around 12.9 Bcf/d through October, it's possible that spot basis could continue to strengthen.
On June 9, the balance-2020 forward basis curve at Carthage was assessed at minus 12 cents/MMBtu, up marginally from month-ago levels around minus 13 to minus 14 cents/MMBtu, Platts M2MS data shows.
In late 2016, dramatic improvements in drilling and recovery technologies in the Haynesville significantly lowered breakeven prices at the wellhead, reigniting producer interest in the play and bringing a flood of rigs and investment dollars back to the already mature basin.
Despite the recent acceleration in drilling cuts, fueled by the downturn in US gas prices that started in fourth-quarter 2019, those basic market fundamentals appear little changed as many producers continue testing the floor on breakeven prices, with some estimates currently below $2/MMBtu.
According to Platts Analytics, production growth in the Haynesville is likely to resume by later this year, and with renewed vigor as declining associated gas supplied by major plays like the Permian boost benchmark prices into the mid- to upper-$2/MMBtu range.
Current forecasts show Haynesville production resuming its upward trajectory by November and climbing to over 16 Bcf/d by late 2021, with continued growth in 2022 potentially testing the basin's existing and planned midstream takeaway capacity.