With NYMEX Henry Hub futures prices quickly approaching the $1.50 / MMBtu price level and with next-day cash delivery prices at $1.50 / MMBtu at the Henry Hub, the market is now looking for the price level that will cause natural gas producers to shut-in or choke back production to balance the massive natural gas storage surplus resulting from the near record warm winter and record high production. The following tables and graphs show the variable cost break-evens and cumulative shut-in volumes for each public producer in the natural gas dominant Haynesville and Northeast regions. It is assumed that the oil and liquids rich basins elsewhere in the Lower 48 US will not experience shut-ins since the wells are predominantly oil and natural gas liquids, two commodities which are still highly profitable for producers. We begin with the Haynesville basin.
Haynesville
The Haynesville basin has virtually no crude oil or natural gas liquids. Therefore, the producers are purely natural gas based. Break-even or shut-in pricing would likely begin around $1.21 / MMBtu at the Henry Hub and move all the way down to $0.83 / MMBtu. The cumulative shut-in volumes assume that producers would shut-in 100% of their volumes if prices were to hit their break-even pricing levels.
Below $1.00 / MMBtu at the Henry Hub, 3 Bcf/d of natural gas production is at risk of being shut-in from public producers in the Haynesville basin. This analysis does not consider the break-evens for private producers. Private producers make up another 11-12 Bcf/d of natural gas production in the Haynesville basin, which would result in much higher production shut-ins if Henry Hub prices were to go below $1.00 / MMBtu. It is unclear what percentage of their daily production natural gas producers would shut-in if market pricing goes significantly below their break-even costs. Crude oil production fell 23% when the Covid-19 pandemic hit as oil prices went well below break-even pricing levels. Therefore, a shut-in utilization factor of 23% can be used from the cumulative shut-in volumes shown on the tables in this article.
Northeast
While the Northeast (Marcellus and Utica basins) is a natural gas dominant basin, it has significant natural gas liquids and even a little bit of crude oil production for most producers. The natural gas liquids and crude oil allow break-even pricing to be lower in general for the Northeast natural gas producers as compared to the Haynesville natural gas producers. The following table presents the break-even levels and cumulative shut-in volumes for the public Northeast producers adjusted for the natural gas liquids and crude oil netbacks.
Once again, the cumulative production shut-in volumes assume that producers shut-in 100% of their volumes if prices go below break-even levels. The public producers represent about 53% of total Northeast natural gas production. Private producers in the Northeast represent another 17 Bcf/d of natural gas production that can be curtailed.
Northeast & Haynesville
The following table highlights the break-even pricing levels and cumulative shut-in volumes using a 23% utilization factor for each public producer.
The points seem to cluster around natural gas prices at the Henry Hub and Dominion South being somewhere under $1.00 / MMBtu to see a significant amount of production shut-ins or curtailments. More importantly, duration is another important factor as the shut-in event would have to last at least a month, which means Dominion South FOM (First of the Month) and NYMEX Henry Hub expiration pricing would have to be under $1.00 / MMBtu.
