Victims of Their Own Success

Record low natural gas prices are currently being seen pretty much across the board in North America as the mild winter leaves storage inventories precariously high. However, it is not just the weather that has led us to this point, as advanced drilling and completion technology has led to incredible efficiency gains thus boosting both oil and natural gas production.

This is clearly seen in observing what is going on in the Haynesville Shale located primarily in northwest Louisiana and northeast Texas. One year ago, there were 67 rigs operating in this area and production was running about 15 BCF/D as new pipelines were boosting egress capacity primarily running south to the LNG export terminals. The close proximity and lower transportation costs to support LNG exports along the Gulf Coast give Haynesville production a distinct advantage over other shale zones like Marcellus/Utica.

Today there are now only 41 rigs actively drilling and frac crews have also been reduced proportionally which is an almost 40% drop from 12 months ago. With longer horizontal laterals now approaching 3 miles and more efficient drilling from a single pad, higher production levels are now possible with slightly lower declines which has resulted in almost no drop in total Haynesville production.

Additional LNG export capacity is expected to come online in late 2024/early 2025 and the producers seem to have set production levels with this expectation. In the interim, the market is over-supplied waiting on LNG export growth and prices have dropped well below break-even for most producers. Just because you can don’t mean you should!