NEW YORK: US natural gas futures soared by about 10% on Wednesday after Chesapeake Energy - soon to be the biggest US gas producer after its merger with Southwestern Energy - cut the amount of gas it plans to produce in 2024 by about 30% due to the recent plunge in prices to a 3-1/2-year low.
Chesapeake was just the latest US gas producer to slash spending and reduce rigs after prices dropped about 31% so far in 2024 after falling 44% in 2023.
Last week, US energy firms Antero Resources, Comstock Resources and EQT, currently the nation’s biggest gas producer, said they also planned to reduce drilling this year. Chesapeake lowered it prior capital expenditure guidance by about 20% through rig count reductions and deferring well completions, which should cut gas production to around 2.7 billion cubic feet per day (bcfd) in 2024, down from around 3.5 bcfd in 2023.
One billion cubic feet is enough gas to supply about five million US homes for a day. “We’re fans of the move as (Chesapeake) slashes production well below consensus expectations while preserving volumes for a healthier demand market in 2025+,” said Matt Portillo, head of research for Perella Weinberg Partners’ TPH&Co. Portillo was referring to a widely held belief in the market that US gas demand will surge higher in 2025 and beyond as several liquefied natural gas (LNG) export plants that are currently under construction enter service.
US LNG export capacity is expected to almost double over the next four years from about 13.8 bcfd now to around 24.4 bcfd in 2028. Analysts said that projected LNG demand growth was the primary reason many producers have kept gas output near record levels despite the price drop - until now.
Gas prices fell so far this year because a mild winter kept heating demand low, leaving stockpiles at well above normal levels, while output remained near record levels despite an Arctic freeze in January that briefly cut output and caused gas demand to soar to a record high.
Analysts noted that gas output could still increase in 2024 even if more producers cut back on gas drilling because crude prices were high enough to encourage oil producers to drill in shale basins like the Permian in Texas and New Mexico and the Bakken in North Dakota, where oil wells produce a lot of associated gas.
Analysts forecast US gas stockpiles at around 22% above-normal levels for this time of year. Front-month gas futures rose 15.9 cents, or 10.1%, to $1.735 per million British thermal units at 10:10 a.m. EST (1510 GMT).
That pushed the front-month out of technically oversold territory for the first time in 11 days and would be the biggest one-day percentage gain since April 2023 when prices jumped 11.2%. On Tuesday, the contract closed at its lowest since June 2020, which was the height of COVID-19 demand destruction.
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