Haynesville gas output poised for increase

Spot natural gas prices for output from the Haynesville shale in east Texas and northern Louisiana have increased sharply from a year earlier and may boost gas production there in the coming months.

Output from the Haynesville and other US gas fields tumbled last year as prices dropped below $2/mmBtu on lackluster demand, high production and large stockpiles. But prices have staged a recovery as demand for US gas exports increased and winter cold drew down inventories.

The Columbia Gulf Mainline index, a bellwether for the value of Haynesville gas output, so far this month has averaged $2.17/mmBtu, up by 41pc from a year earlier. The year-over-year increase in spot prices highlights the Haynesville's proximity to key demand centers along the US Gulf coast and a rash of cold weather across the southern US in February. An increase in US gas production there could contribute to higher inventories next winter or keep a lid on gas prices this summer, if demand remains static.

US gas production will be the key variable to watch as exports remain high and the US gas market moves through spring, when mild weather cuts into gas demand, according to analysts with Tudor Pickering Holt. The Haynesville is among the "most likely growth candidates," the analysts noted.

Demand along the coast has surged as LNG exports increased this year because of cold weather in overseas markets. Scheduled deliveries to US LNG terminals in April have averaged 10.3 Bcf/d (292mn m³/d), up by 14pc from the average in March and 30pc higher than a year earlier. Flows to those terminals fell to a low last summer of 2.2 Bcf/d on 26 August on an economic downturn related to the Covid-19 pandemic.

In addition, a blast of unusually cold weather in February curbed output from Louisiana and Texas and stoked gas demand for heating. The combination of lower production and high demand left US gas inventories in the south-central US below average levels. Those low inventories can bolster prices by raising concerns about potential spikes in demand or supply shortfalls.

Producers in the Haynesville have ramped up drilling to take advantage of higher gas prices. The rig count in the Haynesville shale last week rose to 45, up by one rig from a week earlier and seven rigs higher than the same week last year, according to oil field services Baker Hughes. The Haynesville last week had the highest rig count of any US gas field and about half of all the working gas rigs in the US.

Haynesville gas production last month was still slightly lower than a year earlier but did increase sharply from February as weather-related shut-ins were restored.

Output in March reached about 12 Bcf/d, up by 3pc from February but 0.2pc lower than in March 2020, according to the US Energy Information Administration (EIA).

The EIA has forecast that US gas output will increase marginally this year because of higher energy prices. The agency said it expects gas output to drop to 90.8 Bcf/d in May before steadily increasing for the remainder of the year.

By Jason Womack