Production cut due to weak prices

Shortage of supply causes cash prices to rise

Storage injections under pressure

NYMEX natural gas futures for next month held on to their gains from the previous week in trading on August 12, as signs grew that recent cuts in U.S. gas production are leading to a supply tightening in the domestic market.

In morning trading, the Henry Hub futures contract for next month rose to its highest level since early July, changing hands for just over $2.25/MMBtu. By mid-session, gas prices for September had declined but remained in a range of about $2.15 to $2.20, CME Group data showed.

Last week, prompt-month futures rose about 30 cents, or more than 15%, recovering from lows of below $1.90 in early August, according to data from S&P Global Commodity Insights.

The price increase comes amid what appears to be a sustained cut in U.S. gas production this month. After hitting a 22-week high of nearly 104 Bcf/d in late July, domestic production has fallen rapidly since then, falling to an average of 101.6 Bcf/d last week, data from Commodity Insights show.

Cuts

Some of the largest publicly traded U.S. gas producers announced a decline in production and announced plans to slow their drilling and completion activities or production ramp-ups in recent conference calls to release second-quarter results.

The producers’ renewed commitments to cut production are likely to have reinforced the market’s growing confidence that the recent decline in gas production will be permanent – at least in the short term.

In late July, EQT was among the first companies to announce a renewed commitment to production curtailment, saying it expected a further average cut of 500 million cubic feet per day for the remainder of 2024.

Coterra Energy, another major Pennsylvania landowner, pledged in its own quarterly conference call in early August to cut its Marcellus production by 275 million net cubic feet per day because it is dependent on prices in the basin. Other producers, including Chesapeake Energy, CNX Resources and Ascent Resources, have also pledged to cut production in response to the weak price environment.

Tighter supply

The continued support for gas prices for the current month is also due to recent production cuts taking their toll on the spot market, pushing up cash prices to Henry Hub and reducing the size of storage injections.

On Aug. 12, the Henry Hub gas price rose nearly 20 cents from its Aug. 9 valuation price to settle at $2.145/MMBtu, the highest since mid-July, according to preliminary settlement data from Platts, part of S&P Global Commodity Insights.

Market analysts say the recent tightening of U.S. supply is also likely to keep downward pressure on the gas surplus in U.S. storage facilities. For the week ending August 9, at least some market observers expect the U.S. Energy Information Administration to announce a rare storage draw for August.

Commodity Insights’ latest gas supply and demand and storage models now predict a decline in the range of 2 to 11 Bcf.

According to Early View, a gas storage survey conducted by The Desk at Scudder Publishing Group, market analysts currently expect the EIA to report injection of just 1 Bcf for the week ending Aug. 9. Current forecasts compare to an average injection of 43 Bcf over the past five years and an increase of 33 Bcf last year, according to agency data.