Natural gas prices in the United States fell to a 30-month low last week, dropping to $2 per mmBtu. And, while some producers have curbed drilling, the surplus isn’t going away anytime soon.
Gas futures have plummeted by around 50% since the beginning of the year, marking a record decline for a quarter. The drop was primarily due to milder-than-expected winter weather, which has crushed demand for heating and utility companies to store more gas than usual.
Chesapeake Energy and Comstock Resources are among the major gas producers that have slashed output. Despite the drop in production, however, natural gas output from oil operations in shale fields will likely continue flowing.
Jacques Rousseau, managing director at ClearView Energy Partners LLC, explained, "About a third of U.S. gas production is associated gas - produced from oil wells," adding, "This production is unlikely to decline given current oil prices."
U.S. Energy Information Administration (EIA) data highlights record monthly oil output in the Permian this year.
Natural gas from the Permian has also reached record highs every month.
Despite the significant drop in gas futures, which currently stand at $2.01 per mmBtu, analysts suggest that the price still needs to be even higher to discourage output gains.
Morningstar Research energy strategist Stephen Ellis explained, "Gas prices are begging the market to cut back on supply."
The United States government has projected that gas production will reach 100.67 billion cubic feet per day (bcfd) this year, up from 98.09 bcfd in 2022.
Projected U.S. gas usage, including exports, is expected to ease to 107.3 bcfd this year from a record 107.4 bcfd in 2022.
This drop is despite an anticipated 14% bump in U.S. LNG exports, as Freeport LNG's export plant in Texas returns to production after an eight-month outage.
Freeport LNG consumes about 2% of total U.S. gas supply when operating at full capacity.
Despite the low gas prices, Baker Hughes Co data indicates that U.S. drillers have 160 rigs seeking gas, up 16% from the previous year. Gas output in the Haynesville shale field is also expected to reach fresh highs in March and April, despite Chesapeake and Comstock dropping rigs.
While low natural gas prices have led some producers to reduce drilling, the surplus of gas in storage and the rise in gas from oil wells suggest that output is likely to continue growing.
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Additionally, the mild winter weather and diminishing LNG export options have led to falling U.S. consumption, which may put further pressure on gas prices in the coming months.
By Michael Kern for Oilprice.com
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