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US natural gas production estimates dip below 90 Bcf/d amid growing supply concerns

Highlights

Early-cycle estimates show US output at 88.9 Bcf/d

Enduring declines in Eagle Ford, DJ, SCOOP-STACK

Henry Hub rolling 12-month curve settles at $3.31

US natural gas production on June 15 was estimated at its lowest level since this winter's historic freeze, underscoring recent supply weakness as the market enters its peak-demand period of summer.

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Initial estimates June 15 showed US production at just 88.9 Bcf/d, according to data compiled by S&P Global Platts Analytics. While the final production figure could be revised upward, the data reflects a recent drop in the Permian Basin and the Haynesville and ongoing constraints in Appalachia.

In the Permian, production fell to 12 Bcf on June 15, down from a high at over 12.7 Bcf/d earlier this month. In the Haynesville, production dipped to 12.4 Bcf, off from an earlier June high at 12.9 Bcf/d.

RELATED: US natural gas storage inventories forecast to rise by 78 Bcf: survey

In Appalachia, declines spread across the tri-state area cut output to 33.3 Bcf, down from recent levels closer to 34 Bcf/d as restrictions on Texas Eastern Transmission continue to limit upstream receipts.

In all three locations, production remains within striking distance of pre-pandemic levels as the outlook for the US upstream industry has continued to improve. Still, the drop in total US production below 90 Bcf/d, underscores the continued tightness in domestic supply that comes as a larger share of post-pandemic production becomes concentrated in just a handful of the most-profitable basins.

Laggard basins

In basins like the Eagle Ford, the Denver-Julesburg, the SCOOP-STACK and in the offshore Gulf of Mexico, gas production this year remains sharply lower compared to pre-pandemic levels, raising questions about the potential for output to stage a meaningful recovery in these locations.

In the Eagle Ford, where the rig count remains at less than half of its pre-pandemic high, month-to-date output has averaged just 4.8 Bcf/d – about 850 MMcf/d below its January 2020 level.

In the Denver-Julesburg, output is down about 250 MMcf/d over the same period as questions loom over the longer-term impact of Colorado's 2,000-foot drilling setback which took effect earlier this year.

In the SCOOP/STACK, where many operators have been frustrated by varying rock quality and unpredictable returns, production this month remains about 550 MMcf/d below its January 2020 level.

A steady long-term decline trend in the offshore Gulf of Mexico is likely to blame for weaker production there, which is also about 550 MMcf/d below its pre-pandemic level, Platts Analytics data shows.

In all four locations, production this year has shown little or no aptitude for growth that could restore the basin's output to pre-pandemic levels. According to a recent forecast from Platts Analytics, production from the aforementioned basins will remain flat to modestly lower over the balance of 2021 with output from the SCOOP/STACK and the US Gulf of Mexico likely to enter a steady but prolonged decline.

Market outlook

Continued supply weakness in the US market is promising to keep benchmark Henry Hub gas trading comfortably over $3 this year amid strong domestic and export demand.

Earlier this month, cash prices edged past the $3 mark where they've remained as summer cooling demand begins heating up. Longer-term gains in export demand from LNG terminals and pipelines that deliver to Mexico is keeping the near-term outlook bullish too. At market settlement June 14, the Henry Hub rolling 12-month forward curve settled at an average $3.31/MMBtu for calendar-month price through May 2022, S&P Global Platts most recently published M2MS data shows.