New York—Haynesville gas production is surging into the new year, climbing to its highest in nearly eight months, as operators there respond to a bullish outlook for the basin's strategically located supply.
In January, Haynesville production gas averaged over 13 Bcf/d as a wave of new rig additions lifts the basin's total to its highest since January 2020, data compiled by S&P Global Platts Analytics shows.In the fourth quarter, operators in the Texas-Louisiana shale play added 10 rigs, bringing the total fleet to 46 as of Dec. 30, according to data published by Enverus. Following the fallout in commodity prices last March, the Haynesville is now the only major US shale basin to have fully recovered its drilling fleet.
As output from the Haynesville surges toward prior record highs at over 13.5 Bcf/d–now expected by mid-year according to Platts Analytics–gas production from associated plays like the Permian, the Eagle Ford and the Bakken has continued to stagnate compared to year-ago levels, leaving the Haynesville well positioned to supply a tighter US market.
US supply slumpIn January, total US gas production has averaged just 90.7 Bcf/d–down more than 5 Bcf/d from its prior record high and about 3 Bcf/d below its early January 2020 level.
Reduced gas supply from oil-heavy basins has fueled a rally in the Henry Hub 2021 forward gas curve. In late October, the run-up in prices peaked as the calendar-year average topped $3.15/MMBtu.
While mild winter weather and elevated storage volumes have since dampened the outlook for prices, a modest recovery in the forward curve has taken hold since late December as forwards traders reconsider the steep and sustained selloff. On Jan. 5, the calendar-year 2021 Henry Hub price settled at an average $2.80/MMBtu–up about 13%, or more than 30 cents, from its recent low.
For Haynesville producers, current prices offer a generous margin to sustain future growth. According to Platts Analytics, the breakeven wellhead gas price for an average producer has improved significantly in recent years and is now estimated at around $2.50/MMBtu.
DemandAs lower US production continues to put domestic supply under pressure, record LNG feedgas demand at terminals along the Gulf Coast has compounded the tighter market balance, making the Haynesville's Texas-Louisiana location strategically well placed to benefit.
In January, total US feedgas demand has remained at a record-high 11 Bcf/d as US exporters look to capture multiyear highs in Northeast Asia's import market where the JKM settled Jan. 6 at nearly $20/MMBtu amid a regional cold snap and a surge in Japanese power prices.
With March-delivered cargoes priced at over $10 and April around $7, US exports could be expected to continue at or near full throttle through the first quarter. According to a forecast from Platts Analytics, export demand should remain near 11 Bcf/d through March before retreating below 10 Bcf/d from April to October as global demand wanes in the spring and summer.
According to Platts Analytics, the ongoing midstream buildout from the Haynesville is helping to debottleneck producer access to the Gulf Coast export market, making it strategically placed to supply exporters. In addition to previously completed expansion projects, which have recently added some 1.75 Bcf/d of capacity, a third project under development by Midcoast Energy–the CJ Express–promises to expand market access from the Haynesville by another 1 Bcf/d by later this quarter.
