20 Jul 2020

JBC in the Media - Natural Gas World

US Producers Hope for a Year of Two Halves

"'On natural gas prices, I think many in the market were too bullish – this year was always going to be a difficult year from a global supply and demand perspective, even pre-crisis,' Richard Gorry, a managing director at research firm JBC Energy, told NGW. Nonetheless, he said that in December 2019, JBC was projecting that US gas production would grow by 3.4% in 2020. Now, in the wake of the oil price war and Covid-19, the firm expects US gas production to fall by 2.8% this year instead. Backing up Gorry’s comment is the fact that US Energy Information Administration (EIA) data show production from the country’s leading dry gas shale regions – Appalachia and the Haynesville shale – on a downward trend since late 2019. [...] Gorry agreed that this drop-off was primarily down to the price of natural gas, but noted that this had been building for some time. 'It is increasingly difficult to make the economic case to invest in gas production in the short term,' he said."

"While the LNG market is expected to continue grappling with oversupply into 2021, there are signs of demand recovery in China and elsewhere, and a seasonal uptick over the winter, related to heating needs, is also expected. This could play out within the US as well, boosting domestic gas demand for heating and pushing up prices. Gorry noted that the US National Oceanic and Atmospheric Administration (NOAA) was estimating the chance of a La Nina weather pattern forming and being in place this winter at 50-55%. 'If this is correct, we could be in for a very cold winter, and we may see prices recover strongly late in 2020 and early 2021,' he said."

"JBC, for its part, also expects some short-term recovery, but is cautious in its longer-term expectations. 'We would expect oil prices to be less volatile in H2 than in the first half the year. Of course, this shouldn’t be hard given that we had an oil price war and a global pandemic in the first six months of the year,' said Gorry. 'The price stability should allow some producers to temporarily increase production but longer term the lower oil price environment will mean lower shale oil production and lower associated gas production as a result.' He added, however, that US production can always surprise, particularly if oil prices were to rise $5-10/barrel, likely stimulating supply and creating even more volatility. The extent to which a recovery hinges on oil prices and weather patterns shows how vulnerable the US gas industry remains in this oversupplied market."