US Energy Dept Sees 2021 Drop in Gas Output
US gas production will be an estimated 2% lower this year than last, averaging 96.2bn ft3/d, the Energy Information Administration (EIA) said January 14. But it will bounce back 2% next year, compared with year-ending 2021 production of 98.2bn ft3/d, it said. Prices will be higher too.
US gas producers set annual records in 2018 and 2019, largely based on increased drilling in shale and tight oil formations. This led to more gas in storage and a corresponding decrease in natural gas prices. In 2020, the supply and demand contraction as a result of the Covid-19 pandemic resulted in marketed natural gas production decreasing by 2% from 2019 levels.
And despite the surge in crude prices since the Opec+ meeting January 5 and the surging spot price for LNG in Asia, the EIA forecasts associated gas production from oil wells in the Permian Basin to fall because of a "lower West Texas Intermediate (WTI) crude oil price and reduced drilling activity in the early months of 2021."
But as the WTI price increases, associated gas production will likely rise with it. Natural gas production from predominantly natural gas regions such as the Appalachia Basin is closely tied to the Henry Hub price. EIA estimates that the Henry Hub price will gradually rise from an average $2.03/mn Btu in 2020 to more than $3.00/mn Btu in 2022. The increase in the Henry Hub price is likely to result in a rise in natural gas production in Appalachia.
However, natural gas production in Appalachia may reach its takeaway capacity constraints in 2021 if the Mountain Valley Pipeline, scheduled to enter service in late 2021, is delayed. It is the only active pipeline project planned to come online in 2021 that will add significant takeaway capacity from the Appalachia region.