After hitting all-time high production levels in November 2019 averaging over 95 Bcf per day, then dropping to average only 87.7 Bcf/day during the oil war plagued summer of 2020, we find ourselves in the midst of a surprising recovery of gas production over the past couple of months. Admittedly, the recovery has not been consistent, but the upward trend is undeniable. The below U.S. natural gas production chart from Bloomberg NEF shows the recovery since mid-September in the highlighted area of the black line (2020) compared to the previous year, 2019 (magenta line). The last seven days of November averaged an impressive 92.25 Bcf/day, with increases in nearly every major production area.
When we see trends like this, we often need to be reminded why NYMEX prices still have upside potential for the rest of the winter and throughout 2021. So here is your pre-holiday list of items that might kill one’s optimism of seeing a sub $2.00 NYMEX anytime soon.
- Drilling rig count has declined significantly from 802 rigs a year ago to just 320 on 11/25/2020.
- Well completion rates are up even though rig counts are down. This means the Drilled but UnCompleted (DUC) wells available for quick supply are being tapped into. DUCs have declined in the past 4 months, implying that much of the recent increase in production is coming from wells previously drilled.
- November 2020 weather was one of the warmest on record, masking the supply/demand balance so far this winter. The December forecast is now showing much cooler temperatures.
- LNG export demand has come back strong the past two months. After averaging 3.3 Bcf/day in July, exports hit a recent daily high of 10.7 Bcf.
In reality, there are movers in the current gas market that can make gas prices increase or decrease $0.10-$0.20 or more on any given day based on the news cycle. Do not let the news cycle determine your energy spend or risk and take control by managing it based on the risks you want to take. Reach out to Edison Energy to learn more.