Natural Gas Became the Racehorse Producers Are Betting On

• Producers responded to strong natural gas demand and a favorable price environment with increased production and infrastructure extension projects.

• U.S. shale natural gas production already exceeded pre-pandemic levels.

• Production is set to rise further as the number of natural gas rigs are growing. 

Natural gas is the new star for oil and gas companies with more than fifty natural gas pipeline extension projects scheduled for completion through 2025. Steady domestic demand and rising global demand are driving this investment renewal.

Natural gas will continue to be a necessary energy source as the U.S. moves to reduce greenhouse gas emissions. As burning natural gas produces lower carbon dioxide emissions than coal or petroleum, domestic consumption should remain relatively stable in the foreseeable future – ignoring seasonal fluctuations. U.S. natural gas consumption decreased as cooler weather prevailed in August (-2% MoM), however, it kept a strong pace compared to previous years (4% YoY/ 1% YoY3).

 

Surging global demand provides the additional steam behind this natural gas resurgence. Desperate to move away from Russian gas, Europe has turned to importing from the U.S. In addition, Asia was and will continue to be a major buyer of U.S. liquified natural gas (LNG). U.S. LNG exports sustained an upward trend (5% MoM/ 6% YoY/ 129% YoY3), despite a key export terminal, Freeport, being inoperative from fire damage. As a result of the increased foreign demand, Henry Hub spot prices – the benchmark for U.S. natural gas – climbed (21% MoM / 116% YoY/ 296% YoY3).

Producers, attracted by strong demand and a favorable price environment, responded by expanding production. U.S. shale natural gas production, accounting for over three-quarters of U.S. output, continued its growth above pre-pandemic levels (1% MoM / 5% YoY / 12% YoY3). Impressive considering the rebounds in natural gas production occurred while the number of rigs was below pre-pandemic norms (-4% YoY3). As rig counts rose (3% MoM/ 60% YoY), we anticipate a corresponding hike in output during the upcoming months.