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    US gas supply forecast is bullish, but prices are bearish as storage surpluses continue to grow [GGP]


Short-term gas production forecasts are bullish on supply, bearish on prices as storage surpluses continue to grow. Without an uptick in US LNG exports, demand appears to be a minimal factor heading into injection season.

by: Rystad Energy

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Complimentary, NGW News Alert, Natural Gas & LNG News, Americas, Global Gas Perspectives, Market News, News By Country, United States

US gas supply forecast is bullish, but prices are bearish as storage surpluses continue to grow [GGP]

Winter demand made an abrupt return last week, signaled by a sizable storage withdrawal of 82 Bcf in the US lower 48.
The East and Midwest regions both experienced 38 Bcf withdrawals across the week.

However, the primary storage story is the resilience of South-Central salts, which saw an injection of 12 Bcf, bringing it to 6.6% above the five-year average.


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S&P 2023

Mild weather, high activity leading to regional production growth, and ongoing Freeport LNG restart delays are forcing prices down in the South-Central region.

Prompt-month Henry Hub prices continue their volatile start to 2023 as the market works to find an equilibrium between ramping up production and dwindling demand.

Prompt (Feb-23) Henry Hub prices settled at $3.447/MMbtu yesterday, a 13% decline in 2023.

We expect significant annual dry gas production growth of 6.9 Bcfd in 2023, a 7% jump from last year, keeping prices muted.

The Permian and Haynesville basins remain the key drivers for short-term growth, but takeaway capacity concerns persist.

Due to pipeline limitations in the Permian, we anticipate the bulk of 2023’s production growth to come from the Haynesville.

The forecast also anticipates heightened activity levels to be subject to operator budgets and capital allocations for the year.
The number of onshore gas rigs in the US increased by 4 to 131 last week.

Most operators’ primary focus remains the Haynesville, and current estimates indicate dry gas production of 15.7 Bcfd for January 2023.

The region is running 71 rigs, significantly above maintenance activity levels.

In a scenario of continuous domestic price declines, we anticipate production growth in the Haynesville will have the most downside risk of all the regions.

Our forecast for Permian production growth in 2023 is just 1.6 Bcfd year-over-year.

However, regional flow constraints will likely get some reprieve as Kinder Morgan anticipates repairs on El Paso Natural Gas L2000, returning ~450 MMcfd in takeaway capacity to the region this quarter.

On the demand side, mild weather to kick off the year has seen domestic consumption tail off significantly since the winter storm in December 2022.

Total consumption in January is expected to average 106.7 Bcfd.

However, there is some upside to those figures, as recent weekend weather models are forecasting a “cold shot” in the next few days.

This will provide a short-term upside catalyst for Henry Hub prices, but if the forecast is correct, pricing in the Midwest and Pacific will have the most upside as those regions are forecasted to experience frigid temperatures.

The restart of Freeport LNG continues to face issues, and uncertainty lingers.

The operator’s most recent announcement stated a restart in mid-January.

While some minor amounts of feedgas entered the facility last week, volumes have dropped back to zero in recent days.

We maintain our current forecast – a restart no earlier than March 2023.

Signs of an earlier re-start will also provide a short-term upside catalyst for prompt month pricing and modestly alter the trajectory of absolute storage in South-Central storage.

However, on a relative basis, South-Central storage remains significantly elevated with little signs of relief ahead.

Last week, US LNG facilities exported 1.38 MT, 30% lower than the same period last year.

Our current forecast expects US LNG exports to average 12 Bcfd in 2023 (+12% Y-o-Y), which will support domestic balances.

Prompt Month (February) Henry Hub prices are set to expire at the end of the week as the usual participants expect volatility into expiration.

Short-term production growth continues to hinder prices, with the current month estimated to average 100 Bcfd.

Coupled with a lack of upside catalysts on the demand side, storage will continue to paint a bearish scenario for prices.

This could lead operators in gas-focused basins to alter their spending and activity plans for 2023.