Better Future Could Be Ahead for Haynesville Gas Producers as Supply/Demand Fundamentals Turn Their Way

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Natural gas producers have been battered by sharply falling prices for the last nine months. But for those who can hang on a few more years, better days may be ahead, particularly those active in the Haynesville Shale, a speaker told a conference last week sponsored by Enverus (Austin, Texas).

"Natural gas will be a horror show in the near term," with storage levels well above their five-year average and Lower 48 production on track to break production records, said Al Salazar, a senior vice president for intelligence at Enverus. Those factors are expected to weigh on gas prices.

But that horror show could turn on a dime. A colder-than-average winter in the U.S. or in Europe could cause a dramatic change in pricing.

Longer term, liquefied natural gas (LNG) exports are expected to nearly double over the remainder of this decade, to an estimated 24.9 billion cubic feet per day (Bcf/d) in 2030 from 12.8 Bcf/d today, Salazar said. Sharply rising demand for LNG feed gas should turn the Haynesville Shale into the pivotal incremental supplier, in part because gas production in the Permian Basin and Eagle Ford Shale are anticipated to flatten and then decline in the second half of this decade.

Click on the image at right to see current natural gas production levels from the Permian Basin.

"Production from the Haynesville will have to play a critical role in the back-half of this decade," Salazar predicted. Production from that unconventional formation comes at or below a cost below $3 per million British thermal units (MMBtu) and will need to rise to 25 Bcf/d by 2030, up from about 15 Bcf/d today, to keep gas in storage at normal levels.

Should the Haynesville be unable to meet the entirety of this call on supply, more expensive plays will fill the supply gap, Salazar told Enverus' EVOLVE conference May 16. And that region faces less pipeline pushback, unlike other unconventional formations, such as Appalachia.

Click on the image at right to see current natural gas production levels from the Haynesville Shale.

In fact, several proposed gas pipeline projects have been proposed for the Haynesville. By contrast, a lack of outbound gas pipeline capacity in the Permian is leading to gas flaring there. And the Appalachian Basin, primarily the Marcellus Shale, remains pipeline constrained as proposed pipeline projects, such as the Mountain Valley Pipeline, have not yet been completed.

"The demand side is all about LNG after 2025," Salazar said. There is a "timing mismatch" between gas production and LNG export capacity that will push up prices in the second half of this decade, he projected. Prices then could be double today's price of $2.50 per million British thermal units (MMBtus) at Henry Hub, Louisiana.

Salazar predicted that gas production in the Permian will plateau at about 25 Bcf/d by 2028, roughly 5 Bcf/d above current production levels. Gas production from the Eagle Ford is expected to decline from current levels of slightly over 7 Bcf/d, he added.

Click on the image at right to see gas production form the Eagle Ford Shale.

"The market is looking to the Haynesville to see who will blink first," Salazar said. That formation is dry, meaning it has little oil, making it harder for gas-focused producers to operate profitably there. As production in the Permian peaks and then declines, Salazar said the market will seek replacement supplies, chiefly to satisfy future LNG export demand. But some Haynesville producers, already financially strapped, may not be able to hold out for that expected better future.

Current gas strip prices of about $2.50 per MMBtu aren't high enough to stimulate enough new drilling in the Haynesville, Salazar said. He projected a price of $5 or more per MMBtu would be needed to increase production in the Haynesville.

One of the key risks to his projection is the potential for a recession in the U.S., which likely would cut demand for gas and throw into question the better future forecast for Haynesville producers.

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