Lower 48 natural gas production this month hit a once-unthinkable milestone, topping the all-important psychological threshold of 100 Bcf/d for the first time. Volumes have remained at record highs through mid-September, with year-on-year gains expanding to a breathtaking 7-9 Bcf/d above last year at this time (when hurricane-related shut-ins were in effect). The record production levels coincided with a seasonal decline in weather-related demand, as well as the ongoing outage at the Freeport LNG export terminal. Remarkably, however, even with all-time high, ~100 Bcf/d natural gas production and Freeport LNG offline, the Lower 48 gas market balance averaged tighter year-on-year — a testament to just how strong consumption has been lately, and for much of this summer for that matter. In today’s blog, we look at how the supply-demand balance has shaped up this month and where it’s headed near-term.
The last time we discussed 100 Bcf/d gas production was in late 2019 as dry gas volumes topped 96 Bcf/d for the first time. As we wrote in Un-Thinkable at the time, it seemed like 100 Bcf/d production was just around the corner. The Lower 48 gas storage inventory had built up a significant year-on-year surplus by the end of the 2019 injection season (April-October), the largest year-on-year surplus since 2016 in fact. Henry Hub prompt futures that summer averaged little more than $2.50/MMBtu, the lowest in more than 20 years. To top it off, the global gas market outlook was also bearish, and U.S. LNG export projects were struggling to justify capital investments. So, the question back then was, will there be enough demand to absorb 100 Bcf/d of supply? Of course, the point was rendered moot. The pandemic hit, lockdowns to curb the spread crushed gas demand globally and at home. Prices collapsed further to sub-$2/MMBtu levels for many months, and amid the bewildering uncertainty, producers resorted to shutting in producing wells.
Well, it took another three years to get there, but production finally crossed that 100 Bcf/d threshold this month (or at least came close, depending on who you ask and how they model production). In our model output — published daily in our NATGAS Billboard report — Lower 48 dry gas production hit a record 100.1 Bcf/d on September 6 (black dot in Figure 1).
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