NYMEX gas futures climb as producer EQT announces production cut

NYMEX Henry Hub gas futures jumped March 4 as Appalachian gas producer EQT announced a 1 Bcf/d gross production cut in response to oversupply conditions in the US market.

The prompt-month April contract gained as much as 15 cents in the morning to $1.98/MMBtu before settling at $1.91 on the day, intraday data from the CME Group showed.

EQT attributed the decision to scale back output to low prices resulting from warm winter weather and high natural gas storage levels. The curtailment, which was initiated in late February and will extend at least through March, is expected to reduce net production by 30-40 Bcf, EQT said.

EQT shares were up 3% to $38.02/share by midafternoon March 4 but later pared some gains, closing up 1% at $37.53 on light trading.

"This is basically the same story as Chesapeake," Mizuho commodities futures analyst Mizuho Bob Yawger told S&P Global Commodity Insights March 4, referring to the Appalachia and Haynesville Shale producer's decision to reduce activity.

Chesapeake Energy on Feb. 21 announced a roughly 20% reduction in capital spending in 2024, dropping also the company's production guidance by around 15% from its previous preliminary outlook.

The then-prompt March futures contract gained 20 cents on the day, and prices have generally improved since.

"Everybody's got to make [cuts]" with prices and production where they are, Yawger added. "To a certain degree, this is a domestic equivalent of the situation at OPEC ... everybody's got to contribute somewhat."

Revisiting guidance

Truist Securities oil and gas analyst Bertrand Donnes said EQT will likely target its higher-cost wells and low-profit wells while keeping up with its minimum volume commitments to the pipelines. "For now, we expect the company to continue to run its [approximately] 3 rig/crew program, with a much lower strip needed before making cuts to activity," Donnes told clients March 4.

In addition to sidelining some wells, Donnes said EQT may rearrange the schedule for bringing new wells online.

During a Feb. 14 conference call sketching out 2024 capital plans, EQT executives announced a modest reduction of full-year production guidance but declined to commit to a decrease in spending or to define plans for production cuts.

"Our breakevens are significantly lower than what we think is the marginal cost of production, and we're going to see if those marginal producers reduce activities," CEO Toby Rice said at the time. "We've already seen that start to happen."

Since then, in-basin peer Coterra Energy announced plans for a 6% year-on-year production decline within the Marcellus Shale, while competitor Range Resources said it would hold production flat in 2024.

As associated gas production increases with little regard for gas market fundamentals, operators in the gas basins are being tasked with responding to oversupply and weak pricing while trying to preserve operational momentum into the latter half of the year, when new incremental LNG feedgas demand is expected to arrive.

At a US level, gas production has declined from all-time highs recorded in December 2023, when output averaged nearly 105.7 Bcf/d, according to data from S&P Global Commodity Insights. Since the beginning of February, dry gas production is down to roughly 103.5 Bcf/d.

For EQT, full-year guidance provided for total sales volumes of 2.2-2.3 Tcfe in 2024. In 2023, total sales volumes were nearly 2.02 Tcfe.

The company could extend the production curtailment beyond the current month if conditions warrant, EQT said March 4.

Market outlook

EQT's announcement comes alongside a continued bearish outlook for the US gas market over the next few weeks, with seasonal heating demand forecast to hold below the five-year average, S&P Global data showed.

Weather outlooks are calling for historically mild temperatures through mid-March, which is expected to push the surplus to the five-year natural gas storage average even higher than the 498 Bcf reported by the US Energy Information Administration on Feb. 29. At 2.374 Tcf, Lower 48 gas storage was nearly 27% above average as of Feb. 23, EIA data showed.

S&P Global's supply-demand model currently projects a 37-Bcf withdrawal for the week ended March 1 and a 20-Bcf build for the following week, which together would drive storage levels to nearly 40% above the five-year average.