Published: July 10, 2020 |

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Associated natural gas production from some of the largest US crude basins is on the rebound in July as previously curtailed wells are brought back online, lifting total output to its highest since early May.

So far in July, gas production from the Permian Basin, the Eagle Ford Shale, the Denver-Julesburg Basin and the Bakken Shale is up about 430 MMcf/d, 300 MMcf/d, 140 MMcf/d and 130 MMcf/d, respectively, compared with each basin’s June average, data compiled by S&P Global Platts Analytics shows.

In the Permian, cash prices at the basin’s benchmark Waha hub are down sharply in response to the additional supply, averaging $1.12/MMBtu so far this month, about 25 cents weaker than in June. In the Rockies, prices at the Denver-Julesburg’s nearby Cheyenne Hub are down about 5 cents on the month.

In the South Texas and the Midcontinent, cash markets at upstream hubs servicing the Eagle Ford and the Bakken, respectively, are up about 4 to 5 cents in July, mostly owing to a recent tightening in regional supplies due to a stronger power burns and a drop in Appalachian production.

At the national level, recent increases from associated gas plays have lifted total production to an average of 87.3 Bcf/d over the past seven days – its highest in about eight weeks, according to Platts Analytics.

RIG COUNTS

Rising associated gas production in major US crude plays comes as many operators appear to be hitting the brakes on recent production curtailments, even as they continue to pull back on drilling activity.

In mid-June, Continental Resources said it would restart over 50 percent of its previously curtailed oil production in July. Other shale players including WPX Energy, EOG Resources and Parsley Energy said previously that they too were beginning, or planning, to bring more production back online.

Moves to restore mothballed production come as US benchmark crude prices continue to edge higher, averaging over $40/b this month, according to S&P Global Platts data.

Recent market bullishness has not been enough to stem the tide on drilling curtailments, though. On July 2, total US rig deployments were estimated at another record low, totaling just 285 — down by over 65 percent from an annual high at 841 rigs, data published by Enverus DrillingInfo showed.

The Permian has been the hardest hit, shedding 289 rigs since early March to reach a total of just 140 as of July 2. Over the same four-month period, the Eagle Ford shed 70 rigs to reach nine currently; the Bakken has shipped 43 rigs to stand at 10, while producers in the Denver-Julesburg have pulled 25 rigs to leave just three operating currently.

SUPPLY GROWTH

According to Platts Analytics, rebounding production from previously curtailed wells should continue lifting US output this month, which is forecast to average over 89 Bcf/d. By August, production could top 90 Bcf/d, before edging back to the 86 Bcf/d to 88 Bcf/d range over the balance of 2020.

As US output continues to rise this summer amid weakened demand from the LNG and industrial sectors, more gas is likely to find its way into storage, potentially pushing inventories to capacity before the traditional injection season ends in early November.

On July 9, the US Energy Information Administration is expected to announce a 53 Bcf injection, lifting total stocks to 3.132 Tcf for the week that ended July 3, according to the consensus expectations of a survey of analysts by S&P Global Platts.

At current levels, five-year average builds over the balance of injection season would lift stocks above their previous historic record high of 4.05 Tcf by mid-October.

Despite significant downside risk to spot gas markets come early autumn, the Henry Hub October forward was most recently assessed at $2.03/MMBtu on July 7, up from a record low of $1.73/MMBtu on June 26, S&P Global Platts M2MS data shows.

Source: S&P Global

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