Counter to rig count trends over much of 2023, natural gas production in the Haynesville Shale proved robust through the first half of November and could continue to help drive strong overall output, according to East Daley Analytics.
Pipeline flows in Louisiana and East Texas averaged 13.2 Bcf/d through Nov. 16, marking a 300 MMcf/d jump over October levels and the highest volumes East Daley has observed since the basin’s 2023 output peaked at 13.7 Bcf/d in May, analyst Oren Pilant said. Most of the gains were on Energy Transfer LP’s Enable-Haynesville gathering system (plus-275 MMcf/d), with small gains on several other gathering systems, he said.
Pilant said near record levels of LNG feed gas demand – above 14 Bcf/d through most of this month – “could be responsible for some of the increase in flows” from the Haynesville. He noted that Venture Global LNG Inc.’s Calcasieu Pass liquefied natural gas facility on the Gulf Coast recently received record-high volumes near 1.8 Bcf/d at one point in November, “and could have commitments leading to the growth.”
Shifts in natural gas prices likely also played a role in the increase. “Some producers may also have hedges tied to deliveries in November 2023, the start of the 2023-24 heating season,” Pilant said. Henry Hub futures have consistently traded around $3/MMBtu this year for the winter months – and well below the $4 handle -- but contracts were recently “priced over $4 at the start of 2024. Producers with favorable hedges may be bringing on new wells to meet commitments and increasing overall supply” as a result.
Indeed, bullish traders and producers appear to be looking beyond current fundamentals – elevated supplies and modest prices – and toward the potential for stronger demand in the heart of winter and expected future spikes in LNG demand.
Near-term prices remain subdued. Henry Hub futures fell below the $3 level last week and remained there Monday. Cash prices held below that threshold as well. NGI’s Weekly Spot Gas National Avg. for the Nov. 20-22 period, for example, slipped 2.0 cents to $2.850.
Yet natural gas production, elevated throughout the fall months, has held near record levels around 105 Bcf/d for much of November. That is near all-time highs around 106 Bcf/d reached this fall. Strength in the Haynesville has been complemented by stout supplies of associated gas output – produced alongside oil -- from the Permian Basin.
Associated gas produced from the top three oil plays in the Permian region – Wolfcamp, Spraberry and Bone Spring – nearly tripled from 2018 to the third quarter of this year, from an annual average of 4.7 Bcf/d to 13.7 Bcf/d, according to Energy Information Administration (EIA) researchers.
They said such gas output swelled because of both rising crude production amid steady global demand and an increasing gas-to-oil ratio (GOR) among wells in the three leading plays. The GOR measures the volume of natural gas per barrel of oil that a well produces.
“The GOR of an oil well increases naturally over time,” the EIA researchers said. “Pressure within the reservoir declines progressively as more oil is brought to the surface, which allows more natural gas to be released from the geologic formation. As more oil and natural gas is released within a well, the GOR tends to progressively increase, increasing the volume of associated natural gas produced per every barrel of oil.”
For the latest tally covering the week ended Nov. 22, the Haynesville added one rig and increased its total to 39. Still, that was down 43% from a year earlier, when prices were notably stronger, according to Baker Hughes Co. data.
That noted, continually advancing technology also bolsters production efficiency and, by extension, the level of output from existing rigs in areas such as the Haynesville. So even with lower rig counts this year, producers were able to reach all-time high volumes this fall and continue to hold close to that level, EIA data show.
U.S. export facilities called for steady supplies to meet ongoing demand for LNG from Europe and Asia. Pipeline exports to Mexico also have held at strong levels in November.
That demand proved “no match for production” in terms of price influences this fall, analysts at Mobius Risk Group said. But producers remain prolific in expectation of ongoing export demand increases in coming years. The first of several new LNG facilities along the Gulf Coast are slated to start-up in 2024, with more to follow in ensuing years, the Mobius team noted.
With gas producers bracing for robust LNG calls in the years ahead, producers are likely to continue to keep gas output high through this year and into 2024, said Mike Matousek, head trader at U.S. Global Investors.
“We may not see record levels, but it looks like things could stay close,” Matousek told NGI. “Fossil fuel demand isn’t going away any time soon.”
