Over the past year, BTU Analytics has been reminding its clients that the recovery in Henry Hub pricing from pandemic lows could only mean one thing: that lower prices would eventually return. While the catalyst behind gas pricing’s recent crash back to Earth was mild winter weather, both in the U.S. and in Europe, BTU Analytics had highlighted the eventual culprit would be the impending oversupply of natural gas. And though this oversupply was certainly aided by growth in gas-directed regions, like the Haynesville, it was primarily driven by growth in associated gas, or natural gas that comes as a by-product of oil production. This is not the first time that associated gas has wreaked havoc on Henry Hub, but as BTU Analytics looks ahead to the wave of new gas demand showing up in 2025 and beyond, associated gas may not show up. Without it, though, there are few other options to make up the resulting shortfall in supply.
Though growth in U.S. natural gas production is expected to slow in the near-term in response to lower pricing, BTU Analytics forecasts a rapid rise in volumes in 2025 and beyond as a new wave of LNG export capacity materializes along the Gulf Coast. Rising Henry Hub prices in these years are expected to fuel production growth from gas-directed regions, like the Haynesville, Dry Eagle Ford, and Oklahoma. However, more than two-thirds, or nearly 12 Bcf/d, of the expected dry gas production growth through 2028 is expected to come from regions that are driven by oil prices, as shown in the chart below.
It’s noteworthy that this growth in associated gas production is based on BTU Analytics’ forecast that WTI will rise rapidly this summer, in the wake of rebounding Chinese demand and falling Russian supply, before averaging $75/bbl from 2026 to 2028. Under this pricing scenario, dry gas production growth from oil-directed regions remains consistent through 2028. This also assumes that roughly half of cash flow from operations is reinvested into production, while the other half is funneled towards dividends, share buybacks, debt repayments, and other non-productive uses.
However, this price forecast is bullish the current WTI strip price, which averages $66.90/bbl through 2028. To understand how this alternate view on oil pricing could impact production, BTU Analytics utilized its proprietary cash flow-based model. This model focuses only on how the cash generation of oil and gas operations impacts future investment and ignores any potential constraints like inventory, infrastructure, or other factors. According to this model, if pricing were to fall below BTU Analytics’ forecast and align with the strip price, associated gas production would remain flat from 2024 to 2028, as shown in the chart below. By 2028, these two scenarios represent a 7.9 Bcf/d difference in dry gas production.
Without adjusting any of the other pieces of BTU Analytics’ natural gas forecast, this lower oil price scenario would create an untenable environment for natural gas storage, as shown in the chart below. Whereas the U.S. natural gas supply-demand balance is roughly balanced beyond 2024 in BTU Analytics’ forecast, stagnant associated gas production in the current WTI strip price scenario creates a supply-demand imbalance of more than 7 Bcf/d by 2028. While BTU Analytics doesn’t believe this imbalance will reach these levels, this scenario highlights just how important the activity in oil-directed regions is to meeting U.S. natural gas demand through the next five years.
In all, without associated gas growth, markets would need to find balance elsewhere. Either production growth in gas-directed regions would need to accelerate significantly, almost certainly sparking inventory and infrastructure concerns, or demand would need to fall considerably. Regardless, either solution would need to be spurred by a rapid rise in natural gas pricing above BTU Analytics’ already bullish outlook for 2026 to 2028.
Join us on March 1, as BTU Analytics – a FactSet Company hosts a webinar to discuss this topic and answer whether other supply basins could fill the void created by associated gas or if demand from LNG and other sources would need to be priced out of the market. Register here!