Natural Gas Weekly: February 7th, 2024
Flows – The mid-January freeze-offs caused by Winter Storm Heather sent gas production lower by at least 2.6 Bcf/d in January 2024, according to pipeline samples tracked by East Daley. Production has mostly recovered but remains lower than the record levels seen in December ’23.
Average flow samples dipped M-o-M by ~2.6 Bcf/d from December to January, but have returned in the first week of February to only ~0.5 Bcf/d short of December ’23 flows. Actual supply curtailments were likely greater from the storm since pipeline samples do not fully capture activity in many basins.
Pipe samples in the ArkLaTex region have fully bounced back in February and actually grown by 360 MMcf/d over the December ’23 average. The Appalachian sample is still down by ~240 MMcf/d from December, likely due to some seasonality of regional flows.
In the latest Macro Gas Supply and Demand Forecast, EDA estimates Lower 48 dry gas production would take a 2 Bcf/d hit from Winter Storm Heather, falling from 105.2 Bcf/d in December ‘23 to 103.2 Bcf/d in January ‘24. We completed the forecast mid-month and, based on the latest samples, are likely to lower our production estimate in the next Macro report. We forecast dry gas production will average 104.6 Bcf/d in February.
By comparison, the Energy Information Administration (EIA) estimates in its latest Short-Term Energy Outlook (STEO) that gas production will decline from 106 Bcf/d in December ’23 to 102 Bcf/d in January ’24, with February ramping back to 105 Bcf/d.
Looking ahead for 2024, East Daley estimates dry production to average 104 Bcf/d and ramp up to an average of 106 Bcf/d in 2025 to meet growing demand. EIA’s latest STEO is in line with our production forecast for 2024 and 2025.
Infrastructure – Newly exploratory acreage in the Western Haynesville play is yielding monster wells with initial production (IP) rates well above the average for East Texas.
According to East Daley’s latest well data, East Texas IP rates currently average 11.7 MMcf/d. However, in Robertson County, Aethon Energy’s latest three wells are averaging 22.4 MMcf/d, according to Texas Railroad Commission (TRC) reports. Comstock Resources (CRK) also drills in the area and tested its sixth and seventh completed wells, Cazey MS and Lanier #1, at IP rates of 34 MMcf/d and 35 MMcf/d, respectively.
In 2022, Comstock acquired from Legacy Reserves the Pinnacle gathering and treating system, including the Bethel processing plant. On CRK’s 3Q23 earnings, management reported a system treating capacity of up to 500 MMcf/d, with expectations to fill that capacity by 2025.
Plant data tracked by East Daley shows inlet gas volumes through the Bethel plant grew rapidly in the second half of 2023, averaging 105 MMcf/d in December ’23. Recent flows would still leave plenty of upside for CRK to grow volumes at the system’s current design capacity.
CRK is partnering with Quantum Capital Solutions to expand the system up to 2 Bcf/d. QL will contribute 100% of the capital required, up to $300 million, for the system’s development. Comstock will operate the venture as Pinnacle Gas Services. Quantum will receive a preferred return and 80% of distributions until the investment hurdle is cleared, and 30% thereafter.
Storage – Traders and analysts expect the Energy Information Administration (EIA) to post an 80 Bcf withdrawal from working gas storage for the week ending February 1. Inventories would fall to 2,579 Bcf for the week and end January at 2,590 Bcf, in line with East Daley’s forecast in the monthly Macro Gas Supply and Demand Forecast.
The surplus to the 5-year average would increase to 254 Bcf if the market forecast proves accurate This week’s report is extremely bearish compared to both last year and the 5-year average withdrawal rate due to widespread above-normal temperatures at the end of January.
With eight reporting weeks remaining in the Winter 2023-24 withdrawal season, expectations are low for another serious bout of cold weather. Two-week forecasts do show some above-average gas-weighted heating degree days (GWHDDs) in the February 17-22 period, but nothing close to the impact from Winter Storm Heather in mid-January.
If storage withdrawals track with the 5--year average over the next eight reports, inventory would exit winter at 1,869 Bcf, or 710 Bcf lower than the current level. The end-March projection of 1,884 Bcf in the monthly Macro Gas Forecast is in range, as we assume a slightly lower injection rate over the next two months. We believe there is risk to inventories finishing above 1,900 Bcf and further suppressing prices through the shoulder season.
Rigs – US rigs increased by 4 W-o-W to bring the total count to 597. The Anadarko is up 2 rigs while the Eagle Ford, Marcellus - NE PA, and Marcellus+Utica each gained 1 rig. The Permian lost 2 rigs.
On the midstream side, Targa Resources (TRGP) is up 2 rigs with gains on its Permian and Eagle Ford systems. EnLink Midstream (ENLC) is up 2 rigs with additions in the Delaware Basin. Williams (WMB) is down 3 rigs with losses in the ArkLaTex
East Daley’s weekly Midstream Activity Tracker monitors rig activity by basin and gathering and processing (G&P) system to better understand midstream impacts. We allocate rigs and monitor flows through 150+ public and privately owned G&P systems in every North American basin. Reach out for more information on the Midstream Activity Tracker.