While producers such as the combined merger of Chesapeake Energy & Southwestern Energy, CNX Resources, and others continue to build an inventory of Not Yet TILed (NYT) wells in both Haynesville and Marcellus (and possibly even in Permian New Mexico), the question becomes at what regional economic pricing level and time spread level (summer to winter spread) do producers finally TIL their wells. In general, lower regional (Henry Hub for Haynesville, Dominion and TETCO M3 for Marcellus) natural gas pricing and wider summer to winter spreads will continue to encourage producers to build more NYT wells during the weak shoulder demand months of May and June. Typically, when natural gas prices fall, summer to winter spreads widen with more contango. Conversely, higher regional natural gas pricing usually leads to tighter summer to winter spreads with less contango.
Recently, natural gas prices have been increasing along with tightening summer to winter spreads. Henry Hub July 2024 at $2.70 / MMBtu is now at a high enough economic price to begin TILing the NYT wells in Haynesville. The question also becomes is it worth it to wait and TIL the wells later until wintertime.
The spread between the summer to the winter is one way to try to answer that question. The July 2024 to December 2024 NYMEX Henry Hub spread (one spread variant of a summer to winter spread) has also tightened significantly during the trading month of May.
While prices for July 2024 are now high enough for Haynesville producers to TIL their NYT wells, the summer to winter spread is still probably wide enough for them to delay TILing their wells until late October or November. If the July 2024 to December 2024 spread were to tighten significantly further to around minus 80 cents or tighter, along with $3 plus pricing at the Henry Hub, then there is a good probability that producers will go ahead and TIL their wells in Haynesville. Fortunately, SynMax is monitoring through satellite imagery the status of the TIL delayed wells from Chesapeake and Southwestern, so there is no need to speculate or guess.