US gas pain to last until November

US gas production may bottom in November before coming back next year, as slashed budgets and shuttered fields reduce the amount of oil and gas hitting the market in the States.

Gas production in the lower 48 states, but not including the Gulf of Mexico, is forecast to hit 82.5 billion cubic feet per day (Bcfd) before a gradual recovery in 2021, according to Rystad Energy, an information service.

“We expect that gas production will decline every single month until November in our base-case scenario,” Rystad head of shale research Artem Abramov wrote.

“This assumes a gradual reactivation of producing fields and is based on what curtailments we realistically see happening, rather than taking a basin-wide analogical approach.”

Gas production has already dropped from about 94Bcfd in November to 88.9Bcfd in April this year.

The US oil price is back above $US30 ($46) and the Henry Hub gas price, a key benchmark for US gas, is around $US1.80 per million British thermal units (MMBtu), lows only surpassed in 2016 and 1999.

Pain for Australian oil and gas producers

Most Australian companies in the US are looking for oil with a side of gas, rather than being mainly gas focused.

“As many oil-focused producers implement significant production curtailments, one might think that this loss will also start to affect associated gas production soon. Still, associated gas production is not declining as quickly as the market had hoped for so far,“ Abramov said.

Eon NRG (ASX:E2E) is now suspended from trading on the ASX as it tries to talk its bankers into an outcome that doesn’t see the company go under.

Chief financial officer Simon Adams told Stockhead in April Eon NRG would probably shut down the Wyoming and Californian oil fields but hoped its bankers would be lenient, given the price and supply pressures the whole industry was facing.

Fremont Petroleum (ASX:FPL) shut in its Colorado and Kentucky oil wells, while Abilene (ASX:ABL) has suspended its shares as it talks to lenders about its debt load.

Others, like Byron Energy (ASX:BYE), pushed through and continued drilling.

The oversupply in oil, caused by an ill-conceived market share battle between Russia and Saudi Arabia in February, combined with a dramatic drop off in demand due to COVID-19 shutdowns caused prices to plummet.

Those in the US turned negative at one point in April as futures traders tried to offload contracts for May deliveries that would have seen them forced to take possession of actual oil with nowhere to put it, as storage was almost maxed out.

That forced oil and gas producers to slash budgets and reduce drilling activity, which in the US affects future hydrocarbon output as existing shale fields naturally decline quickly. Operators shut some producing oil fields, halting in turn their associated gas output.