After regularly setting production records in 2023, analysts expect E&Ps to slow production as prices drop and wait for new LNG export facilities to come online. (Source: Shutterstock.com)
The U.S. produced an average of 126.3 Bcf/d of natural gas in October, the highest monthly average recorded since the U.S. Energy Information Administration began keeping records in 1980.
The new high mark followed trends over the last year. Going back to October 2022, production records were set in five of the 12 months leading up to October 2023, including a new high average of 125.5 Bcf/d in September 2023.
Texas led all states, producing an average of 34.7 Bcf/d in October, while Pennsylvania was second with an average of 20.6 Bcf/d.
Some analysts said it was unlikely production would remain at highs. Instead, producers are positioning themselves to withstand a period of low natural gas prices in 2024 before emerging markets — namely LNG— increase demand in the latter half of the decade.
The Henry Hub natural gas spot price average for November 2023 was $2.71/MMBtu compared to $5.45/MMBtu in November 2022. Thanks to 2023’s warm winter and record production, Lower 48 natural gas in storage on Dec. 22 was 3,490 Bcf, at the upper range of the five-year-average, according to the EIA.
Producers remain in a waiting game as U.S. LNG export bottlenecks persist.
“With (LNG export facility) Golden Pass now postponed until 2025 and the recent collapse in natural gas prices, we anticipate declining activity/production in dry gas basins,” Zack Van Everen of TPH&Co. Equity Research wrote in a Jan. 3 commentary. “This decline will be driven by producers building DUC inventories and reducing rig counts.”
LNG export capacity in the U.S. is capped at about 11.4 Bcf/d, according to the EIA, even as demand for LNG in Europe and Asia remains strong. New facilities opening along the Gulf Coast, such as the Golden Pass in Port Arthur, Texas, and Plaquemines in Louisiana, are expected to more than double LNG export capacity by 2027.
In 2024, midstream companies are likely to face a difficult market with low commodity prices and declining flow as they also jockey for position in the latter half of the decade.
“Midstream systems across dry gas basins (Williams Cos., Energy Transfer, DT Midstream, Kinder Morgan) are expected to experience declines in 2024,” Van Everen said. “Despite this, investors are likely to position themselves for the demand ramp starting in 2025 and beyond, as 14+Bcf/d of LNG demand is anticipated to be added over the next three years.”
TPH&Co. said other U.S.-based markets for natural gas are increasing in demand, primarily in power generation. Thanks to coal power plant retirements and slowing renewables projects, natural gas will be a favored choice for U.S. power companies facing increased demand, especially from the rising number of data centers.
The future market will favor midstream companies with gas assets, Van Everen said. Energy Transfer, Kinder Morgan, Williams, Targa Resources and Enbridge all own natural gas pipelines and storage.
“In all, we expect the theme of 2024 to be more infrastructure buildouts and M&A as (midstream) companies position themselves to capture the upcoming ramp,” he said.
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