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US gas production hits 2-month high as winter supply outlook remains uncertain

Highlights

Output climbs to 92.3 Bcf/d Oct. 25: Platts Analytics

NYMEX prompt-month gains 62 cents to $5.90/MMBtu

Capital discipline, hedging could limit production gains

US gas production surged Oct. 25 to its highest since Hurricane Ida struck the US Gulf Coast in late August, foreshadowing a potential ramp up by producers ahead of the winter heating season.

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Evening cycle nomination data showed total domestic output at over 92.3 Bcf/d on Oct. 25 – a fresh two-month high, propelled by gains in non-associated production from the Marcellus, the Utica and the Haynesville, data compiled by S&P Global Platts Analytics showed.

Across Appalachia, output jumped to its highest since early September, hitting 33.9 Bcf/d amid recent gains from the Ohio and South Pennsylvania dry windows and the West Virginia Wet. Production from the Haynesville was flat to weekend estimates around 13.6 Bcf/d, but still sharply from a mid-October dip to levels below 13 Bcf/d.

Recent gains non-associated production have helped to offset continued weakness from the offshore fields in the Gulf of Mexico and relatively flat output from the crude-heavy basins, like the Permian, the Denver-Julesburg, the Bakken and the SCOOP-STACK.

As the heating season begins ramping up in earnest, lingering concerns over winter-season gas supply have propelled prices at the benchmark Henry Hub to sustained highs not seen in years – raising doubts over the possibility that dry gas producers may yet respond to the uptick in prices. In Oct. 25 trading, the NYMEX prompt-month contract gained 62 cents to settle at $5.90/MMBtu, its highest since early October.

Supply outlook

In Appalachia, most of the publicly owned producers have announced regimented guidance plans for the balance of 2021, including disciplined capital spending and maintenance-level production.

With many producers in the Northeast also highly hedged through the fourth quarter, conventional wisdom would suggest that there's little reason to anticipate a ramp in production ahead of this winter.

Still, at nearly $6/MMBtu the brow-raising price of Henry Hub gas raises doubts over previous guidance announced by producers in Appalachia, the Haynesville and elsewhere.

In recent investor presentations, at least two of Appalachia's producers have announced plans to dial up production in the months ahead. Among them are Coterra Energy, formerly know as Cabot Oil & Gas, which has said it plans to increase production ahead of the expected startup of Transcontinental Gas Pipe Line's Leidy South Expansion Project. According to Platts Analytics, the new expansion could increase overall Northeast production by as much as 1 Bcf/d.

In August, National Fuel Gas' Seneca Resources division also announced its own plan to expand gas production in Appalachia by some 8% next year from its fiscal-year 2021 estimate.

With many other Appalachian producers signaling a more bullish approach to hedging in 2022, it's possible that some surprising production guidance could be in store for upcoming third-quarter conference calls.

Over at least the past five winter seasons, Appalachia's producers have dialed up gas production in the fourth quarter, just ahead of the winter heating season, followed by flat to slightly lower production in Q1, data from Platts Analytics shows.