Production Trends and Adjustments

The U.S. has seen a substantial reduction in natural gas production. Current data indicates that output in the Lower 48 states has declined to approximately 100.2 billion cubic feet per day (bcfd), a notable decrease from February’s average of 104.1 bcfd. This trend is largely a response to the ongoing drop in natural gas prices, prompting significant production cuts by major players in the industry.

Chesapeake Energy, soon to be the largest U.S. gas producer post-merger with Southwestern Energy, plans a drastic 30% reduction in its 2024 production. Similarly, EQT, the top natural gas producer currently, announced a curtailment of nearly 1 bcfd of production through March. These measures are indicative of a strategic industry response to align supply with the current market conditions, which are characterized by a significant surplus.

LNG Export Reductions

The natural gas market is also contending with challenges in the LNG export sector. The ongoing outage at the Freeport LNG facility in Texas has notably reduced the volume of gas flowing to LNG export plants. This has led to a decline in external demand for U.S. natural gas, exacerbating the oversupply situation domestically. The resumption of operations at the Freeport facility, expected potentially by mid-March, could provide some relief, but the timing remains uncertain.

Rig Count Declines Indicate Future Output Trends

The latest Baker Hughes report reveals a decrease in the number of operational oil and natural gas rigs, a critical indicator of future production levels. The total rig count has reduced to 622, the lowest in recent weeks, reflecting a 16.6% decrease from the same period last year. This decrease in drilling activity is a direct consequence of the downturn in natural gas prices, coupled with increased operational costs, signaling a more cautious approach from the industry.

Weekly Forecast

Given the current market conditions, including high storage levels, significant production cuts, and reduced LNG exports, the short-term outlook for the U.S. natural gas market remains bearish.