Natural Gas Is Going To Benefit Immensely From The US Shale Slowdown
The turmoil we are seeing in the market has rippled across the US shale patch. From what I'm hearing and seeing over the weekend, US shale oil producers are all looking at revising the current capex plan to fit the incoming uncertainty.
We have already published what we think will happen to US crude oil production and associated gas production last Friday. With US crude oil production set to fall y-o-y due to the lower capex and uncertainty, natural gas will be one of the biggest beneficiaries amidst this chaos.
The Math
On March 12, we published a piece titled, "Natural Gas Injection Storage Math - Where Is Storage By November 2025?" In the article, we believed that US natural gas will finish injection season between 3.5 to 3.7 Tcf. Following the bearish start to March, we have revised that higher to 3.8 Tcf.
But thanks to the drop in US crude oil production, we are revising our estimates lower for natural gas.
One of the key assumptions we used to derive our estimate was for Lower 48 gas production to average ~107.5 Bcf/d. Lower associated gas production of ~2.5 Bcf/d will push the average closer to ~105 Bcf/d.
With production averaging ~106 Bcf/d today, we see overall volumes falling in the coming weeks/months.
At ~105 Bcf/d, net gas supplies will be lower y-o-y by ~1 Bcf/d. We had previously expected a surplus of 1.4 Bcf/d.