Haynesville Flows Buck Trend, Rise in Early November

Natural Gas Weekly: November 9, 2023

Flows: Pipeline flows in the Haynesville play are off to a strong start in November, bucking East Daley’s forecast for declining supply.

Pipeline samples in the ArkLaTex Basin averaged 13.2 Bcf/d in the first week of November, up ~300 MMcf/d over October and the highest volumes we’ve seen since the sample peaked in May 2023 at 13.7 Bcf/d.

Most of the gain in Louisiana and East Texas samples has shown up on Energy Transfer’s (ET) Enable - Haynesville gathering system (+265 MMcf/d). Williams’ (WMB) Louisiana/Magnolia system has actually seen flows decline by -193 MMcf/d M-o-M so far, offset by small gains on several other gathering systems.

Record LNG feedgas demand to the south could be responsible for some of the increase in flows. Venture Global’s Calcasieu Pass LNG recently has received record-high volumes near 1.8 Bcf/d. Some producers may also have commitments tied to deliveries in November, the start of the heating season. Gas futures have consistently been over $3/MMBtu for the 2023-24 winter contracts and may be attracting some supply into the market.

East Daley has been calling for production declines in the Haynesville since July. Our latest ArkLaTex Supply and Demand Forecast expects wellhead production to fall to 17.5 Bcf/d by year-end from a recent peak of 18.7 Bcf/d in May 2023. Basin rig counts averaged 53 in October, down from 75 rigs at the start of the year. We model production to continue declining through July 2024, with significant rig adds starting in May 2024 as gas prices turn around.

Leading Haynesville producers are guiding to a similar outlook. On the company’s 3Q23 earnings call, Southwestern Energy (SWN) executives said they expect overall Haynesville production to decline “at least into early next year,” and that “strip prices are not yet high enough to incentivize production growth.”

Chesapeake Energy (CHK) guided to a steady drilling program of 5 rigs in the Haynesville, with the option to add a rig in the back half of 2024 if prices improve from new LNG demand. Comstock Resources (CRK) has also guided to a flat rig program. CRK is focused on developing its Western Haynesville acreage in Texas, where 2 rigs are currently drilling. CRK plans to add a rig to that acreage in 2024 and another in 2025, keeping the producer’s overall basin rig count at 7.

Infrastructure - Permian natural gas prices fell close to zero this week as maintenance and high linepack on Kinder Morgan’s (KMI) El Paso Natural Gas system weighed on the market.

El Paso called a system-wide critical notice from November 3-6 due to imbalances resulting from high linepack. The pipeline has been conducting maintenance at several locations from the Waha hub to the Cadiz-Mojave station near the California-Arizona border, reducing available capacity on the North Mainline by 654 MMcf/d, or 16% of effective system capacity in the first week of November.

The maintenance work comes amid a seasonal low for demand as a result of mild weather. On Wednesday (November 8), El Paso warned shippers of strained operating conditions as deliveries at certain points fell short of scheduled nominations. The system’s Washington Ranch storage facility was injecting gas at the maximum rate, the pipeline said.

The bearish conditions have put pressure on Waha prices. On Tuesday (November 7), Waha spot prices fell to $0.02/MMBtu or $2.65 behind the Henry Hub, as some gas became trapped within the Permian. Waha gas traded for $0.06 on Wednesday.

More pipeline work is planned this month that will likely keep Permian prices volatile. KMI plans to conduct maintenance on its Gulf Coast Express line from November 14-20, decreasing Permian eastbound egress capacity by an average of 596 MMcf/d during this period.

Storage – Traders expect EIA to report a net 3 Bcf storage withdrawal for the November 3 week. EIA will delay the release of the latest storage report to the following Thursday (November 16) to complete a systems upgrade at the agency.

Market estimates are fairly wide for the November 3 report, reflecting some uncertainty as the season’s first big cold front entered the Lower 48 at the end of October. Estimates for the report range from a 20 Bcf withdrawal to a 36 Bcf injection, according to a survey by The Desk.

EIA will delay the release of the latest storage report to the following Thursday (November 16) to complete a systems upgrade. The agency plans to release two weeks of gas storage data at the same time covering activity for the weeks ending November 3 and November 10.

Lower 48 storage inventory currently totals 3,779 Bcf, 293 Bcf greater than last year and 205 Bcf greater than the 5-year average. In the latest October Macro Supply and Demand Forecast, East Daley projects end-of-season storage levels reach 3,795 Bcf, 226 Bcf higher vs inventories at the end of October 2022. 

Rigs - US rigs decreased by 4 for the November 3 week to bring the total rig count to 596. The Permian lost 3 rigs, while the Powder River, Bakken, Eagle Ford, Marcellus NE-PA, Anadarko and Uinta basins lost 1 rig each.

On the midstream side, Entergy Transfer (ET) is down 3 rigs with losses on its Permian systems. Williams (WMB) is down 1 rig with losses on its ArkLaTex systems. Kinetik Midstream (KNTK) lost 4 rigs on its Delaware system.