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Permian Supply Growth Will Slow in 2025

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Natural Gas Watch: November 11, 2022

RigsEast Daley expects Permian gas supply growth to slow significantly in 2025-26 under the assumption that E&Ps will slow drilling along a backwardated WTI forward curve. However, we’ve steadily revised upward our Permian rig forecast in 2022 (see graph). Our latest forecast falls 8% to 315 rigs by YE23, down from ~340 rigs currently. E&P guidance so far in 3Q22 indicates public operators plan to add rigs next year, which will likely lead us to raise our Permian rig forecast to be relatively flat with 2022 activity despite expectations for lower oil prices.

Flows – Pipe samples continue to lag our forecast in the Northeast. An outage on TETCO Line 73 has cut capacity on Nexus by ~0.5 Bcf/d until Nov. 19. EQT also reported contractor issues have slowed its well-completion program and will lead output to the low end of the producer’s 2022 guidance. We see balmy weather as another factor that has weighed on demand and cut the need for more supply. With the Northeast’s first major cold front expected next week, we’re watching for a rebound in regional pipe samples.

Screenshot 2022-11-11 133734

Infra Constraints – The spread between Carthage and Chicago Citygate prices widened to ~$0.80 in trading this week, indicating pipes between these hubs were full. Typically, Carthage and Chicago trade close to parity as there is ample capacity on the NGPL system linking the two (see figure). Carthage was likely oversupplied, pushing more gas northbound and eventually filling this route.

Storage - EIA reported a 79 Bcf storage injection for the Nov. 4 week, putting inventories at 3,580 Bcf. We forecasted storage to end October at 3,447 Bcf, but unseasonably warm weather has cut into demand. Storge is just 76 Bcf short of the 5-year average.

Screenshot 2022-11-11 133754

Gathering & Processing Rates Report

To bring greater transparency to markets, East Daley Analytics is undertaking a broad study of Gathering & Processing system rates. We maintain asset-level financial models for over 1,000 assets owned by public companies. From this asset pool, we’ve identified 200+ G&P systems for which we can confidently assess rates. We’ve created a G&P rate methodology based off our balanced public asset models. 

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