After full-year production growth of 4% in 2023 and an all-time monthly production high in December 2023, US production growth slowed down significantly in early 2024, setting the market up for an expected year-on-year (y-o-y) decline in production for full-year 2024, the International Energy Agency (IEA) said in its latest quarterly Gas Market Report.
“In late 2023, US dry gas production bucked the trend of slowing growth that had been in place since the start of the year, thanks in part to decreasing y-o-y losses in Appalachian output in the fourth quarter. December recorded exceptional growth, with overall production up by around 6% y-o-y, compared to an average of around just 3% y-o-y in the previous 6-month period. This led to record monthly output in December, topping off a record year for US natural gas production,” IEA said.
However, in early 2024 production growth slowed significantly, averaging just 2% y-o-y for the whole of the first quarter as a result of a combination of factors.
“A spell of extreme cold weather in January led to well freeze-offs in what is becoming a recurrent wintertime event in the US market. While the downside effects on production were milder in 2024 than during winter storm Uri in January 2021, the Permian and Haynesville plays reportedly recorded temporary production declines of around 3 bcf/d and 2 bcf/d, respectively.”
However, the supply-side pressure was brief and transient, exerting only a temporary upward impact on prices. Henry Hub fell steeply in February and March, reaching a multi-decade monthly low of $1.49/MMbtu in March 2024.
“The bearish price environment contributed to the overall slowing of US gas production growth through to the end of the winter season, although monthly production remained slightly up y-o-y. Following months of holding out in the hope of more bullish fundamentals in 2024, a number of gas producers announced a cooling of drilling activity and cutbacks to overall upstream capital expenditure in a sign that the market is expected to remain well balanced through the rest of the year,” IEA said.
US gas storage closed the heating season with inventory levels exceeding their 5-year average by 40%, due to sustained production growth and subdued demand.
With lower storage injection needs during summer and only moderate growth in feedgas demand for LNG exports, the US market is expected to see overall dry gas production fall during the rest of the year, leading to a net y-o-y decline in gas production of around 1% in 2024, IEA forecasted.
“While relatively high oil prices should help keep Permian associated gas production up in 2024, output in other basins is expected to remain relatively flat. A further delay in Mountain Valley Pipeline operations from first-quarter 2024 to late second-quarter 2024 – with the planned start date originally in late 2023 – is expected to restrain takeaway capacity from the Appalachian Basin, effectively putting a cap on potential output growth,” IEA said.
