As the oil glut magnifies, producers are starting to shut in wells, which along with oil production also impacts associated gas production. Between the decrease in drilling activity and shut-ins, BTU is anticipating 5 Bcf/d of production to be removed from the gas market by this summer, which would have ramifications on gas market fundamentals and put upward pressure on natural gas prices. Today’s energy market commentary will explore how producer shut-ins are materializing across the US.
With negative crude pricing roiling through the market, we are seeing continued news of producers curtailing production in oil plays. Continental Resources has “stopped all drilling and shut in most of its wells” in the Bakken. This decrease in production is becoming apparent in gas pipeline nominations. BTU Analytics models daily dry gas production, and we have seen a material decrease in Bakken production over the past week, decreasing by about 25% or 0.5 Bcf/d to 1.5 Bcf/d, as seen in the figure below.
The recent dip in gas production is the most striking in the Bakken, though total US dry gas production is trending downward as well, as seen in the figure below. Dry production has dropped by about 2 Bcf/d from January’s average and nearly 5 Bcf/d from its peak in November 2019.
This decline is set to continue as additional shut-ins take place. Several producers including PDC, Cimarex, and ConocoPhillips announced plans to begin curtailing production beginning in May. ConocoPhillips is expected to curtail nearly 125 MB/d of gross operated oil production across its lower 48 region alone. As oil and gas volumes continue to drop, Henry Hub prices continue to rally. The 2021 calendar average price for Henry Hub has climbed to $2.73/MMBtu after dropping to a low of $2.27/MMBtu on March 8, 2020. As gas prices rally and oil-driven activity declines, BTU Analytics is keeping close tabs on how production trends develop in these turbulent times. Check out the Upstream Outlook to keep up to date on both our oil and gas production outlooks.