U.S. natural gas output fell about 7% over the past month as producers scaled back production following a collapse in prices to a 3-1/2-year low.
Gas prices are down about 23% so far this year, after plunging 44% in 2023, as record production and weak demand from a mild winter left storage facilities at well above seasonally normal levels. Major producers, including Chesapeake Energy and EQT have responded by cutting production.
Gas output in the U.S. Lower 48 states fell to an average of 100.1 billion cubic feet per day (bcfd) so far in March, down from 104.1 bcfd in February, according to financial company LSEG. That compares with a monthly record of 105.5 bcfd in December 2023.
On a daily basis, output was on track to drop around 6.6 bcfd over the past month to a preliminary six-week low of 98.2 bcfd on Wednesday. That would be the lowest daily production since early February 2023, excluding a massive 17.3-bcfd drop in mid-January due to freezing wells.
One billion cubic feet is enough gas to supply about 5 million U.S. homes for a day.
Last week, gas futures fell to an intraday low of $1.511 per million British thermal units, their weakest since June 2020. On an inflation-adjusted basis, gas prices have already collapsed to their lowest in over 30 years.
PRODUCERS REDUCE OUTPUT
The output reductions over the past month underscore that some energy firms, like Chesapeake, Antero Resources and Coterra Energy, were following through on plans to cut production this year, analysts said.
“Some producers have suggested they would hold production flat, while others have noted that they will cut drilling and completion activity, which will affect output six to nine months down the road,” analysts at Bank of America said in a note.
EQT, currently the biggest U.S. gas producer, said on Monday it would curtail nearly 1 bcfd of production through at least March, cutting an estimated 30-40 bcf of net production during the first quarter.
EQT said it would “reassess market conditions thereafter.”
“EQT’s announcement of a 1-bcfd cut of gross natural gas production explains the speed of recent supply losses,” analysts at energy consulting firm EBW Analytics Group said in a note.
EBW projected EQT would likely extend reductions beyond March because the storage surpluses and weak physical pricing would likely persist in April.
Gas in storage is currently about 31% above normal levels for this time of year, analysts have estimated. They project that surplus will increase in coming weeks with the weather expected to remain warmer than usual through mid-March.
In its 2024 outlook, Chesapeake, soon to become the biggest U.S. gas producer after its merger with Southwestern Energy, guided spending lower by about 20% to around $1.25 billion to $1.35 billion through rig count reductions and deferring well completions.
Deferring completions should allow Chesapeake to reduce output in the short term, while maintaining its ability to quickly increase output when needed, analysts said.
The industry expects gas demand to increase in late 2024 and beyond as LNG plants under construction in the U.S. and Mexico enter service.
LNG capacity in the U.S., already the world’s biggest exporter of the supercooled fuel, is on track to almost double over the next four years from around 13.8 bcfd now to 24.5 bcfd in 2028.
(Reporting by Scott DiSavino; Editing by Liz Hampton and Richard Chang)