Natural Gas Production Is Likely To Disappoint To The Downside

The natural gas market is turning the corner. In our NGF last week, we noted that Lower 48 gas production is peaking, and LNG gas exports this year should be materially higher than last year.

We are now starting to see signs that natural gas production is likely to surprise to the downside.

In all the years we've tracked natural gas production, Q3 has historically been the "momentum" quarter. Seasonally speaking, this makes sense. US shale producers weigh capex into the second half of the year due to better weather and pricing. And with the way reserves are calculated, producers want production to be proved and online before year-end.

This is why you typically see US shale oil and natural gas production peak around October/November. The seasonality of this is important because in order to get the momentum of a production bump into Q4, Q3 needs to be the quarter where we see production steadily climb.

That's not the case this year. Natural gas production is losing momentum into Q3, which brings about another new scenario into play: a possible decline into year-end.