Growth in natural gas production in the United States will exceed demand this summer: NGSA

Strong points

Summer-to-summer daily production growth forecast at 3.6 Bcf/d

Future production growth of 1 Bcf/d above demand growth

U.S. natural gas production will increase significantly this summer compared to the summer of 2021, outpacing increases in demand, according to the Natural Gas Supply Association’s 2022 summer outlook.

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The producers’ association’s summer outlook, released on May 11, predicted the balance between supply and demand would remain tight, but “production is clearly up [to] meet this challenge.”

The NGSA forecasts that gas production in the United States will increase by 3.6 billion cubic feet per day this summer compared to last year, with the gains expected to come from both associated and non-associated gas.

This forecast is around 600 MMcf/d, or 20%, above the 3 Bcf/d of summer-over-summer growth projected by S&P Global Commodity Insights in its April 20 short-term U.S. gas forecast. .

Some gains have already been seen, with data from S&P Global showing production averaged 93.6 Bcf/d so far in May, up 1.2 Bcf/d from the same period last month. last year. About half of the May-to-May increase can be attributed to higher Permian gas production, higher production also seen in the Haynesville and SCOOP/STACK basins.

Offer versus demand

As U.S. spot and futures gas prices trade at sustained levels not seen in more than a decade, pushed higher by supply issues, market watchers are watching the benchmark rate closely. supply growth relative to demand growth during the summer charging season.

The NYMEX Henry Hub monthly contract has averaged $7.84/MMBtu so far this month, more than double the $2.95/MMBtu average of the same time last year. . Before those April and May, the short-term gas futures contract last settled above $7/MMBtu in 2008.

The NGSA expects total U.S. gas demand, including exports, to climb 2.6 billion cubic feet per day this summer, driven almost entirely by higher export demand. According to the outlook, domestic gas demand will increase by only 100 million cubic feet per day this summer compared to last summer, with lower gas demand quashing expectations for higher industrial growth. Residential-commercial demand should remain the same as last summer.

Other recent gas market outlooks, such as S&P Global’s short-term U.S. gas forecast and the Energy Information Administration’s short-term energy outlook, also forecast production growth this summer. , but expect demand growth to outpace production gains. Both outlooks highlighted the potential for greater demand for gas-fired electricity, with low coal inventories and rail constraints for coal transport expected to limit the switch from gas to coal.

Production gains

One of the factors limiting production growth this summer may be the continued financial discipline of producers.

U.S. gas producers largely stuck to previous commitments to keep production at sustaining levels during the recent round of Q1 2022 earnings calls. Top priorities included debt repayment, returning cash to shareholders and the restoration of quality ratings.

Some executives at gas-weighted exploration and production companies have also pointed to infrastructure constraints as a barrier to production growth, especially for Appalachian producers. Efforts to build new gas pipelines in the North East have been met with legal challenges and costly delays in obtaining permits in recent years.

Gains in gas production are therefore more likely to be seen in associated gas basins, such as the Permian, this summer. While the Permian has struggled with carry-out capacity constraints in the past, a trio of new intrastate basins brought online in 2020 and 2021 have given the basin some room to grow before reaching limits.

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