The NYMEX Henry Hub October 2024 to December 2024 spread has narrowed significantly over the last few months.
The narrowing of the spread has potentially significant implications in that it may cause deferred TIL wells or DTILs to come online (or TILed) sooner than expected. Most market participants expect the DTILs to come online in November or December. However, the narrowing of the October to December spread could potentially cause the DTILs to be TILed during the month of October 2024 rather than the expected month of November 2024. This would lead to an unexpected production boost in October rather than in November. The October to December spread bears continued watching. Stay tuned!
Efficiency Losses in a Natural Gas Bull Market?
Producer efficiency gains have been dominant in a bear market for natural gas. It has been 2 years since the US natural gas market has been in a bull market where the forward curve was in backwardation.
During this time in 2022, frac crews and rigs were in great demand. In fact, frac crews were in such great demand that they were fully subscribed for several months out. Efficiency gains at the time were not prevalent and if anything, producers were less efficient. This tends to happen in a raging bull market for natural gas and oil as producers are frantically adding frac crews and rigs without any worry for being more efficient. Producers don’t need to be more efficient during strong bull markets because they are making higher than average profits, or economic rent, as economists coin the term. Will the same situation occur in the next bull market for natural gas and oil? It is quite possible as the ability for producers to bring Lower 48 frac crews back to the all-time high of 320 during a supply constrained bull market becomes difficult.