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Why U.S. natural gas production continues to rise as prices fall




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, although some producers have cut drilling to stave off further cramps.

Since the start of the year, U.S. gas futures have collapsed by about 50%, a record drop for a quarter, due to rising production and mostly mild weather so far this winter that kept heating demand low and allowed utilities to leave more gas than usual.

But there is little chance of stopping production from continuing to grow. The amount of gas in U.S. storage, meanwhile, is about 21% higher than normal for this time of year, and that surplus will set U.S. inventories to hit record highs ahead of next winter’s heating season.

Major gas producers including Chesapeake Energy Corp ( CHK.O ) and Comstock Resources Inc ( CRK.N ) are reducing drilling. But gas coming up with oil will continue to rise in the largest shale fields. And the oil producers are not cutting back.

“About one-third of U.S. gas production is associated gas — produced from oil wells,” said Jacques Rousseau, managing director at research firm ClearView Energy Partners LLC. “It is unlikely that this production will decline given today’s oil price.”

The Permian Basin in Texas and New Mexico, the nation’s largest shale field, is now at record monthly oil production this year, according to data from the US Energy Information Administration (EIA). Gas from the Permian has also climbed to record levels every month this year.

So while U.S. gas futures fell 50% in the first quarter of 2023, to $2.22 per mmBtu, they are not low enough to prevent production gains, analysts say.

“Gas prices are begging the market to cut supply, amid falling U.S. consumption and limited LNG export opportunities,” said Stephen Ellis, an energy strategist at Morningstar Research Services LLC.

PRODUCTION REMAINS STUCK

US gas production continues to reach 100.67 billion cubic feet per day (bcfd) this year, up from last year’s record of 98.09 bcfd, according to the US government.

Projected US gas use, including exports, will decline to 107.3 bcfd this year from a record 107.4 bcfd last year due to expected declines in domestic consumption by residential, commercial, industrial and power generation customers.

This drop in usage comes despite an expected 14% increase in US exports of liquefied natural gas (LNG) now that Freeport LNG’s export facility in Texas has returned to production after an eight-month shutdown.

Operating at full capacity, Freeport LNG, which closed after a fire in June 2022, uses about 2% of the total gas supply in the United States.

Despite low gas prices, U.S. drillers have 160 rigs searching for gas up 16% from a year ago, according to data from Baker Hughes Co ( BKR.O ).

Gas production in the Haynesville shale field in Arkansas, Louisiana and Texas, where the Chesapeake and Comstock drop rigs, is also on track to hit new highs in March and April, according to the EIA.

Reporting by Scott DiSavino; Editing by Sandra Maler

Our standards: Thomson Reuters Trust Principles.

Scott Disavino

Thomson Reuters

Covers the North American power and natural gas markets.



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