Golden Pass Delay
On Wednesday, December 6 th, ExxonMobil announced that the 0.7 Bcf/d Golden Pass LNG export terminal will be delayed. Golden Pass was originally expected to come online during the 4 th quarter of 2024, but according to ExxonMobil the start date has now been delayed until sometime during the 1 st half of 2025. Producers in both South Texas and Haynesville will no doubt delay their production expansion plans with the significant delay of this terminal, and it will cause the Hyperion long-term production forecast model to be lowered by 0.7 Bcf/d for November 2024 and December 2024 when the next quarterly production update is released based on producer earnings guidance.
Much Lower NG Prices
Natural gas and crude oil prices have taken very large hits over the past month since the Hyperion long-term production forecast update was released. The April-2024 natural gas Henry Hub futures contract has dropped more than $1 / MMBtu from $3.23 / MMBtu on November 1, 2023, to $2.13 / MMBtu today in mid-December. The April-2024 WTI crude oil futures contract fell from $79.06 / Barrel to $69.46 / Barrel during the same time. While crude oil prices are still at attractive enough levels for producers to keep growing production with or without increasing activity (producers can now expand production without increasing activity thanks to the huge efficiency gains in 2023), natural gas at $2.13 / MMBtu will cause major concerns to some producers about potentially oversupplying the market. The risk to natural gas producers to increasing production in late 2023 was a very warm winter in the Lower 48 US and that is exactly what has been happening.
At $2.13 / MMBtu, Haynesville Louisiana producers will likely go from a maintenance mode to a further cut back in activity more than offsetting the efficiency gains that would result in lower production forecasts in 2024. Even Comstock Resources may pause a bit on their hyper-aggressive production expansion plans in the Bossier of Haynesville Texas.
Northeast natural gas producers will likely be forced to choke back a certain amount of production all summer long in 2024 to avoid storage containment issues. Northeast producers can potentially choke back up to 3 Bcf/d for at least a few months. EQT alone choked back 1 Bcf/d in the summer of 2020 for a few months.
Permian producers and all other associated natural gas producing basins in the Lower 48 US will not be deterred by sub $2 / MMBtu Henry Hub natural gas pricing. Their economics will be dependent on crude oil pricing and ~$70 / Barrel is still attractive enough for them to not make a significant change in plans.
Producers will notify Wall Street if they do change their production growth plans in January-2024 through February-2024 when they release their earnings and production forecast guidance. If producers do pivot and go to more maintenance mode, then Hyperion’s 2024 production forecast will be revised downward. The months of March-2024 through October-2024 could be revised downward by at least 1 Bcf/d, depending on what producers say they plan on producing for 2024. November-2024 and December-2024 could be revised lower by at least 1.7 Bcf/d to account for the delay of Golden Pass LNG and much lower natural gas pricing. In the meantime, based on the prior reporting quarter of producer forecast guidance, natural gas producers continue to be on a production growth plan in 2024 with either no increase in frac count and rig activity or a moderate increase in planned activity. However, the natural gas world has changed dramatically over the last month due to the extremely warm winter. Stay tuned to the Hyperion channel in January-2024 and February-2024 when the next round of producer earnings and production forecast guidance is released!
Hyperion Update
Rigs and frac crews, as measured by Hyperion continue to hover sideways for the last 5 months. Rigs are towards the upper end of the range while frac crews are near the low end of the range. Frac crews did have an initial flurry of increasing activity during the beginning of November 2023, with the advent of winter and the promise of what was higher forward winter pricing. Unfortunately for producers, those hopes have been dashed and frac crew activity has been brought down to near the low end of the 5-month range.
