Chesapeake Energy Curbing Gas Production

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--The low price of natural gas means production is restrained and it would be no surprise to see curtailments through the end of the year, the head of U.S. shale company Chesapeake Energy (NASDAQ:CHK) (Oklahoma City, Oklahoma) said.

Henry Hub, the U.S. benchmark for the price of natural gas, was trading near $2.18 per million British thermal unit (mmBtu) early in the Thursday session. The price this time last year was closer to $2.60 per mmBtu and spiked as high as $9.56 per mmBtu in August 2022, a few short months after Russia invaded Ukraine.

Russia's invasion invoked Western sanctions on its energy sector, leaving the global market strapped for supplies. Producers such as the United States, Qatar and Norway have largely filled the market void. But given a weak global economy and lackluster demand during the waning days of summer, producers are exercising restraint, pursuing shareholder returns over new discoveries.

Speaking at the Barclays CEO Energy-Power Conference, Nick Dell'Osso, the chief executive officer at Chesapeake Energy, said production is down.

"We are curtailing volumes right now," he was quoted by the Reuters news service as saying. "(I) would be surprised if we see the magnitude of volumes curtailed this fall that we saw in the spring, but it wouldn't shock me."

Chesapeake during the three months ending June 30 produced an average of 2.75 billion cubic feet of natural gas per day (Bcf/d), 14% below first quarter levels.

The company largely targets the Appalachia Basin spread out over states such as Ohio and Pennsylvania. The U.S. Energy Information Administration (EIA), the data arm of the U.S. Department of Energy, put Appalachian production at around 30 Bcf/d on average for July, the last full month for which data are available.

EIA expects natural gas production to stay close to current levels through October. Total U.S. natural gas production averaged around 100 Bcf/d in July. EIA expects production next year will be slightly lower than 2023 levels.

On the demand side, EIA anticipates that final figures for August will show that, despite a hot, humid summer, consumption was down 2% from July. On prices, the agency expects Henry Hub to stay at around $2.50 per mmBtu through October due to low consumption and stable production.

"However, we expect seasonal increases in consumption for space heating, along with a ramp up in liquefied natural gas (LNG) exports from new facilities in Texas and Louisiana, will push the Henry Hub price to average about $3.10 per mmBtu from November through March," EIA stated in an August report.

Gas-rich energy company Chesapeake said it believes that the planned $7.4 billion merger with Southwestern Energy (NYSE:SWN) (Houston, Texas) will help deliver the bridge fuels necessary for the energy transition, though issues with federal regulators means closing is delayed to the second half of the year.

The companies in January announced plans to tie the knot in an effort to expand coverage areas in the Appalachia and Haynesville shale reserves. Combined, they believe they have a production capacity of around 7.9 billion cubic feet-equivalent in reserves, with around 15 years' worth of inventory.

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