After the winter ends and heating demand declines, storage fills typically start making hay while the sun shines. The biggest injections of the year happen before the heat of summer arrives and power gen demand slows the storage filling process. Usually, one would say it is too early to speculate on what might happen, but this year there are few factors lining up that should at least be brought to the attention of those that are still largely unprotected for the winter of November 2021 to March 2022.
Dry gas production averaged 91.1 Bcf/d for the month of April, down 0.2 Bcf/d from the prior month, 0.46 Bcf/d lower than same month a year ago and forecasted to grow only slightly by the end of 2021. Drilling rig count has started to recover from lows last year and now stands at 455 rigs as of 5/21/2021. However, it is still well below the pre-COVID levels of January 2020 of nearly 800 rigs. With the average time taking 6-9 months for a well to reach the market, it is well into Q4 2021 or Q1 2022 before this production is seen online. Drilled but uncompleted (DUC) wells, while still at a healthy 6,857 wells, are being tapped into in order to keep production levels flat and have declined 1,631 since January 2020. After decades of overspending, Northeast producers like Antero, CNX Cabot, and SWN have all pledged to remain in a maintenance mode, lowering CAPEX spending plans in 2021 by 1-20% vs 2020. Even if producers wanted to increase production, takeaway capacity out of the Northeast is already being constrained. The chart below shows three major markets for Northeast production.
With an assumed takeaway capacity of a little over 20 Bcf/d out of the Northeast region, takeaway to the southeast, (except for a short period in mid-February) has been over 100% of estimated capacity for months. The Midwest markets are already pulling at 84% of capacity while the remaining major market of Northeast production in New England has excess capacity available to use, but no demand to use it and that will likely not change until winter weather arrives again.
This likely line up the potential for a few things:
1. With limited pipeline capacity, there is little incentive for Northeast producers to spend more drilling wells that have little potential of reaching a market this summer. Which results in
2. Flat production, even as demand continues to increase vs the COVID induced demand destruction of 2020.
3. The low number of wells being drilled and the declining number of DUCs available for supply is unsustainable. All of which leads to
4. The likelihood for significantly higher natural gas prices the rest of this summer, through the upcoming winter and into 2022.