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While the slowdown in U.S. oil production continues, rallying natural gas prices are setting the stage for a rebound in America’s gas output this year, following months of output curtailments in 2024.
Slowing natural gas production last year, fast-depleting inventories during the coldest winter in years, and record-high flows to LNG facilities and LNG exports have pushed the benchmark U.S. natural gas prices above the $4 per million British thermal units (MMBtu) level, up by 160% in one year.
U.S. gas producers, which curbed some output last year when prices were below $2 per MMBtu, are now adding gas rigs and boosting output as the price has more than doubled to $4.26 per MMBtu this week.
Unlike in oil, where the prospects of strong growth are being dampened by WTI Crude prices falling below $70 per barrel and major uncertainties in international prices and politics, natural gas output appears to be prime for growth this year.
At the start of the winter heating season in November, U.S. natural gas inventories were higher than average for the time of the year as America entered the season with stocks at their highest level since 2016.
These stocks, however, were quickly depleted during the coldest winter for six years, with demand for space heating and power generation soaring. A month before the end of the winter heating season, U.S. natural gas inventories have now slumped to below the five-year average and well below the levels from the same time in 2024, at the end of a mild winter.
The lower inventories and the higher demand – both for domestic consumption and LNG exports – have pushed prices higher, encouraging producers to boost gas output this year.
Last year, when the prices hit multi-year lows at the end of the winter and early spring, U.S. producers and pipeline operators acknowledged there was an oversupply hanging over the market.
But some were also stocking up inventories of wells ready to start pumping – or to be turned in line – as soon as prices rebound. Producers expected natural gas prices to recover in 2025 amid growing demand for LNG exports and new LNG export plants that are slated to begin operations.
Venture Global’s Plaquemines LNG shipped its first commissioning cargo at the end of December 2024, while Cheniere Energy produced first LNG from its Corpus Christi Stage 3 Liquefaction Project during the same month.
These plants are still in a stage of commissioning, but they are drawing natural gas and already sending cargoes overseas.
In the week ending March 5, U.S. dry natural gas production grew by 2.1% to average 106.2 Bcf/d, according to EIA’s weekly natural gas update.
Baker Hughes data for the week ending February 25, showed the natural gas rig count increased by 3 rigs from a week ago to 102 rigs.
Amid warmer temperatures, net withdrawals from storage last week were below the five-year average. However, working natural gas stocks were 11% lower than the five-year average and 25% lower than last year at this time, EIA data showed.
Amid higher demand, the average rate of withdrawals from storage has been 25% higher than the five-year average so far in the withdrawal season, which runs from November through March.
The accelerating demand from domestic consumption and LNG exports is underpinning a natural gas price rally so far this year. Higher prices are encouraging producers to add gas rigs and turn in line already drilled gas wells.
This could be the beginning of “drill, baby, drill” for the U.S. natural gas sector, where prices are much more supportive of production growth than for oil producers, who aren’t keen to boost output and bust their budgets with oil prices around $66 per barrel.
