U.S. natural gas producers are pumping the brakes on drilling after a year of low commodity prices. Their efforts will have muted effects on an already glutted market, experts say.

Henry Hub natural gas prices are expected to average $2.36/Mcf this year, a 10% decline from 2023, according to the Energy Information Administration’s (EIA) latest forecast.

That’s also more than a 64% decline from the average price of $6.67/Mcf in 2022—when Russia’s invasion of Ukraine and economic recovery from COVID-19 led to a significant imbalance between global natural gas supply and demand.

Oversupplied storage inventories and relatively mild winter weather across the U.S. contributed to the depressed prices. And prices are low indeed: Henry Hub averaged $1.72/MMBtu in February, a record low after adjusting for inflation.

Several gas producers have responded to price signals by slashing drilling and well-completion activity in gassy U.S. basins.

Pure-play gas producer Chesapeake Energy led the pack: In a fourth-quarter 2023 earnings report, Chesapeake announced plans to begin slashing rigs and completion crews in March.

Appalachia giant EQT Corp., the largest producer of natural gas in the U.S., announced a decrease in production on March 4.

CNX Resources, another Appalachian gas producer, said it would also cut back on production this year, citing low commodity prices.

Some of the biggest names in the U.S. natural gas space are moving in the right direction, to the delight of their investors. EIA officials think the production pullback will do little to move prices.

One culprit for the sticky low prices: record-high volumes of gas associated with crude oil production—often referred to as associated gas.

“Some producers have announced curtailments in production or reductions in upstream spending on natural gas-directed activities this year,” EIA Administrator Joe DeCarolis said in a news release. “But with so much domestic natural gas production tied to growing crude oil production, we expect natural gas production to decrease far more slowly than prices have.”

Experts and industry stakeholders generally agree that natural gas prices should start to recover later this year and into 2025 as a wave of new LNG export projects come online on the U.S. Gulf Coast.

Henry Hub prices are expected to average $3.06/Mcf by 2025, a nearly 30% increase over this year’s forecast.

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Oily outlook

The EIA expects U.S. crude oil production to continue growing this year and next, eventually exceeding the record high set last year.

Average U.S. oil output reached a monthly record of more than 13.3 MMbbl/d in December, the EIA confirmed this week.

U.S. crude output is expected to average 13.2 MMbbl/d in 2023 before ramping up to 13.7 MMbbl/d in 2025, per EIA estimates.

Record U.S. output should help offset new voluntary production cuts recently incorporated by OPEC+.

Production subject to the OPEC+ directive will bring down global output by about 1.1 MMbbl/d this year. But production outside of OPEC+, primarily from the U.S., Guyana, Brazil and Canada, is expected to grow by 1.5 MMbbl/d in 2024.

“Some significant sources of uncertainty remain in our crude oil forecasts, including how the Red Sea conflict could affect production and how strictly OPEC+ members will adhere to their voluntary production cuts,” DeCarolis said.

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