Released October 16, 2024 | SUGAR LAND
en
Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--What is driving the current changes in natural gas production and pricing? How will things shake out in the next 18 months? These and other questions were answered when Industrial Info's Maria Sanchez and East Daley's Jack Weixel combined Industrial Info's bottom-up data with East Daley's exacting analytics in an October 10 webinar. The presentation was entitled, "The Volatility Super Cycle: How Natural Gas Will Behave Over the Next 18 Months."
How It Works
Weixel opened the discussion by explaining the three main factors influencing the commodity's behavior. They include production, demand and storage. First on the agenda was production. Weixel noted how they are related, pointing out that "Constraints in one area, for example gas, can lead to constraints in other areas."
Note: The presentation will be covered in three stories. This one will focus on production.
In the presentation, Weixel noted that U.S. production fluctuated over the summer, dropping down slightly in August, but looks to ramp up as winter's demand cycle increases prices. The opening of a key natural gas pipeline in the prolific Permian Basin in recent weeks will also provide more takeaway capacity, further boosting production in a region where natural gas is mostly a byproduct of oil production. Sanchez noted some key takeaways.
For the first time in three years, Sanchez said, U.S. natural gas production began to drop, due to a persistently low price environment. "Looking at January through September 2024, we observe production declines by 1 Bcf/day (billion cubic feet per day) compared to 2023."
Most cuts were in the Appalachian Basin, a mostly pure-gas play. Equitrans Midstream (Canonsburg, Pennsylvania), Coterra Energy Incorporated (NYSE:CTRA) (Houston, Texas) and Chesapeake Energy (NASDAQ:CHK) (Oklahoma City, Oklahoma) were some of the top operators who cut back. Subsequently, Equitrans has planned to partially reinstate production starting in October and November, Sanchez said.
The onset of the winter heating demand season, along with the opening of the Permian Basin's 580-mile Matterhorn Express pipeline, delivering natural gas to plants in Katy, Texas, will play their parts in reversing the trend. Currently ramping up to 600,000 cubic feet per day, she noted that its capacity is 2.5 Bcf/d, which will likely be attained in early 2025.
Another factor reducing U.S. production was the parade of hurricanes in September, leading to precautionary shutdowns that have mostly returned to production since then.
"Too much, too soon," was Weixel's take on how summer production first rose, then fell. "We saw 101.2 Bcf/d in July, a little bit off from the 103 Bcf we averaged in June," he said. That was too much for the pricing market to absorb, so production dropped again in August. "Production has since declined to about 100 Bcf, but it is going to ramp up, we believe, in the fourth quarter." Some of that depends on weather, such as "a normal winter."
Along with heating demand and the Matterhorn Pipeline, an expanded line in the Northeast, the Mountain Valley Pipeline (MVP) Southgate, will increase some production there, he said.
In the Haynesville of northwest Louisiana and east Texas, growth in a facility in Plaquemines Parish also will ramp up.
Weixel pointed out that East Daley expects Permian natural gas production to reach 18 Bcf/d by February, 2025, a significant rise in just three years. "In 2022, Permian natural gas production was only at 14 Bcf/d."
Focusing on the Supercycle
The Permian Basin is what Weixel called the "epicenter of the volatility super cycle that we're in." In the last six years, that region has effectively doubled its "production and pipeline egress capacity," opening the door to larger price swings as the new facilities came online.
It's all interconnected as well. Changes in one market, such as the Gulf Coast or Southern California, "are going to have outsized effects on the price at Waha" in the Permian, Weixel said.
And the cycle continues. "More recently," he said, "when Matterhorn started flowing, we saw changes at the Houston Ship Channel. We saw an increase in the Waha price. But now that price has actually come down in the past two days due to some maintenance. So price stability is not something that is necessarily permanent."
In the next installment we will address natural gas demand over the next 18 months.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).
How It Works
Weixel opened the discussion by explaining the three main factors influencing the commodity's behavior. They include production, demand and storage. First on the agenda was production. Weixel noted how they are related, pointing out that "Constraints in one area, for example gas, can lead to constraints in other areas."
Note: The presentation will be covered in three stories. This one will focus on production.
In the presentation, Weixel noted that U.S. production fluctuated over the summer, dropping down slightly in August, but looks to ramp up as winter's demand cycle increases prices. The opening of a key natural gas pipeline in the prolific Permian Basin in recent weeks will also provide more takeaway capacity, further boosting production in a region where natural gas is mostly a byproduct of oil production. Sanchez noted some key takeaways.
For the first time in three years, Sanchez said, U.S. natural gas production began to drop, due to a persistently low price environment. "Looking at January through September 2024, we observe production declines by 1 Bcf/day (billion cubic feet per day) compared to 2023."
Most cuts were in the Appalachian Basin, a mostly pure-gas play. Equitrans Midstream (Canonsburg, Pennsylvania), Coterra Energy Incorporated (NYSE:CTRA) (Houston, Texas) and Chesapeake Energy (NASDAQ:CHK) (Oklahoma City, Oklahoma) were some of the top operators who cut back. Subsequently, Equitrans has planned to partially reinstate production starting in October and November, Sanchez said.
The onset of the winter heating demand season, along with the opening of the Permian Basin's 580-mile Matterhorn Express pipeline, delivering natural gas to plants in Katy, Texas, will play their parts in reversing the trend. Currently ramping up to 600,000 cubic feet per day, she noted that its capacity is 2.5 Bcf/d, which will likely be attained in early 2025.
Another factor reducing U.S. production was the parade of hurricanes in September, leading to precautionary shutdowns that have mostly returned to production since then.
"Too much, too soon," was Weixel's take on how summer production first rose, then fell. "We saw 101.2 Bcf/d in July, a little bit off from the 103 Bcf we averaged in June," he said. That was too much for the pricing market to absorb, so production dropped again in August. "Production has since declined to about 100 Bcf, but it is going to ramp up, we believe, in the fourth quarter." Some of that depends on weather, such as "a normal winter."
Along with heating demand and the Matterhorn Pipeline, an expanded line in the Northeast, the Mountain Valley Pipeline (MVP) Southgate, will increase some production there, he said.
In the Haynesville of northwest Louisiana and east Texas, growth in a facility in Plaquemines Parish also will ramp up.
Weixel pointed out that East Daley expects Permian natural gas production to reach 18 Bcf/d by February, 2025, a significant rise in just three years. "In 2022, Permian natural gas production was only at 14 Bcf/d."
Focusing on the Supercycle
The Permian Basin is what Weixel called the "epicenter of the volatility super cycle that we're in." In the last six years, that region has effectively doubled its "production and pipeline egress capacity," opening the door to larger price swings as the new facilities came online.
It's all interconnected as well. Changes in one market, such as the Gulf Coast or Southern California, "are going to have outsized effects on the price at Waha" in the Permian, Weixel said.
And the cycle continues. "More recently," he said, "when Matterhorn started flowing, we saw changes at the Houston Ship Channel. We saw an increase in the Waha price. But now that price has actually come down in the past two days due to some maintenance. So price stability is not something that is necessarily permanent."
In the next installment we will address natural gas demand over the next 18 months.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).
