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ANALYSIS: Haynesville drilling, gas production climb bolstered by rising Henry Hub forwards

Highlights

January 2021 calendar-month prices rise to $3.40/MMBtu

Rig count rebounds from 41-month low at 31 in May

Production rises 500 MMcf/d from summer lows

New York — Rig counts and gas production in the Haynesville Shale are on the rise recently as stronger winter forwards prices and an anticipated uptick in LNG demand brighten the outlook for drilling in the basin.

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In September, rig numbers in the Haynesville have drifted back towards 40, or their highest since March when activity fell to a 41-month low amid a selloff in the energy commodities markets. On Sept. 23, rig count in the Texas-Louisiana play was estimated at 35 – down from levels in early September but still four rigs above an annual low in May, recent data published by Enverus DrillingInfo shows.

The steady uptick in Haynesville drilling this summer appears finally to have reversed a downward trend in production that had been ongoing since early May. Month to date, output has averaged 12 Bcf/d – about 200 MMcf/d above the prior-month average and significantly higher compared with recent lows around 11.5 Bcf/d, data compiled by S&P Global Platts Analytics shows.

Rising forward gas prices at the nearby Henry Hub have likely helped to boost producer confidence.

On Sept. 25, prices for the approaching peak-winter months of December, January and February were assessed at $3.28, $3.40 and $3.35/MMBtu, respectively – up more than 50 cents compared to prices in late July. Over the same two-month period, the 2021 calendar-year curve has gained about 35 cents, rising to nearly $3/MMBtu, S&P Global Platts M2MS data shows.

Demand

Heading into the winter months, rising feedgas demand from Gulf Coast LNG terminals should offer an incremental outlet for Haynesville production.

In October and November, cargo-lifting cancellations at US export terminals are projected to number fewer than 10 per month – down sharply compared with July and August when some 45 loadings per month were cancelled, data recently reported by S&P Global Platts shows.

Following the recent completion of new liquefaction capacity, US feedgas volumes could reach new record highs by late fourth quarter or early next year. According to a recent forecast from Platts Analytics, volumes could top 11 Bcf/d this winter, eclipsing prior single-day records around 9.6 Bcf/d.

With much of this winter's incremental LNG demand coming Gulf Coast terminals in Louisiana and Texas, the Haynesville's strategic proximity could offer producers there competitive price-spreads to the coast – particularly following the recent completion of new production takeaway capacity.

LEAP system

In late July, DTE Energy announced the startup of its Louisiana Energy Access Project, or LEAP, offering producers serviced by the Haynesville's existing Blue Union Gathering System access to a new 150-mile, 36-inch pipeline corridor to the Gulf.

With a terminus at the Gillis Hub in southwest Louisiana, the new intrastate pipe has increased optionality for Haynesville supply to reach end-users across the region via interconnections to Texas Eastern Transmission, Transcontinental Gas Pipe Line, Creole Trail Pipeline and Cameron LNG Pipeline.

According to Platts Analytics, the LEAP system should give Haynesville production a near-term runway for continued growth as the basin's main access routes to the Gulf – Perryville to Henry Hub and Carthage to Houston Ship Channel – become increasingly constrained.