Why U.S. natural gas output keeps rising as prices sink

Comstock Resources

03/04/2023 11:00

By Scott DiSavino
       April 3 (Reuters) - U.S. natural gas prices last week
plunged to a 30-month low, crossing below $2 per million British
thermal units (mmBtu) for the second time this year, even as
some producers have cut drilling to stave off further
convulsions.
    Since the start of the year, U.S. gas futures  NGc1  have
collapsed by about 50%, a record drop for a quarter, on rising
output and mostly mild weather so far this winter that kept
heating demand low and allowed utilities to leave more gas in
storage than usual.
    But there is little chance of stopping output from
continuing to grow. The amount of gas in U.S. storage,
meanwhile, sits about 21% higher than is normal for this time of
year, and that surplus will set up U.S. inventories to reach
record highs before next winter's heating season.  EIA/GAS 
 NGAS/POLL 
    Big gas producers including Chesapeake Energy Corp  CHK.O 
and Comstock Resources Inc  CRK.N  are reducing their drilling.
But gas that comes up with oil will continue to rise in the
biggest shale fields. And oil producers are not cutting back. 
    "About a third of U.S. gas production is associated gas -
produced from oil wells," said Jacques Rousseau, a managing
director at research firm ClearView Energy Partners LLC. "This
production is unlikely to decline given current oil prices."
    The Permian basin of Texas and New Mexico, the nation's
biggest shale field, is hitting record monthly highs in oil
output this year, according to U.S. Energy Information
Administration (EIA) data. Gas from the Permian also has climbed
to record highs every month this year. 
    So, while U.S. gas futures  NGc1  were down by 50% in the
first quarter of 2023, at $2.22 per mmBtu, they are not low
enough to forestall output gains, say analysts. 
    "Gas prices are begging the market to cut back on supply,
amid falling U.S. consumption and constrained LNG export
options," said Stephen Ellis, an energy strategist at
Morningstar Research Services LLC.
    
    PRODUCTION REMAINS STICKY
    U.S. gas production remains on track to hit 100.67 billion
cubic feet per day (bcfd) this year, up from last year's record
98.09 bcfd, according to the U.S. government.
    Projected U.S. gas usage, including exports, will ease to
107.3 bcfd this year from a record 107.4 bcfd last year due to
expected declines in domestic consumption from residential,
commercial, industrial and power generation customers.
    That usage drop comes despite an expected 14% increase in
U.S. liquefied natural gas (LNG) exports now that Freeport LNG's
export plant in Texas has returned to production after an
eight-month outage.
    When operating at full power, Freeport LNG, which shut after
a fire in June 2022, consumes about 2% of total U.S. gas supply.
    Despite low gas prices, U.S. drillers have 160 rigs seeking
gas  RIG-GS-USA-BHI  up 16% from a year ago, according to data
from Baker Hughes Co  BKR.O .  RIG/U 
    Gas output in the Haynesville shale field in Arkansas,
Louisiana and Texas where Chesapeake and Comstock are dropping
rigs, also is on track to reach fresh highs in March and April,
according to the EIA.

 (Reporting by Scott DiSavino; 
Editing by Sandra Maler)
 ((scott.disavino@thomsonreuters.com; +1 332 219 1922; Reuters
Messaging: scott.disavino.thomsonreuters.com@reuters.net))