Haynesville gas production hits record high as US market tightens, prices surge
29 Sep 2021 spglobal.com
Output averaging 13.2 Bcf/d, month to date
Rig count hits 22-month high at 57 in August
Half-cycle IRRs surge on cash, forwards prices
An uptick in drilling activity in the Haynesville earlier this year is paying dividends for producers this month with output from the Texas-Louisiana shale hitting fresh record highs as gas prices surge.
In September, production from the Haynesville has trended close to 13.2 Bcf/d – its highest monthly average on record, according to data from S&P Global Platts Analytics.
This month's production gain comes following a leveling-up in drilling activity in the Haynesville that started early in the second quarter, lifting the rig count from the mid-40s to a 22-month high at 57 in August. On Sept. 23, data reported by Enverus showed the rig count down from its recent high to 53.
The subsequent gains in Haynesville gas production come at a fortuitous moment for producers when the overall US supply-demand balance remains tight and prices elevated.
As Haynesville production surges, supply growth from other major basins like the Permian and Appalachia has lagged with many US operators continuing to hold the line on capital expenditures and drilling. Year to date, domestic output is averaging just 90 Bcf/d – well below pre-pandemic levels.
The sustained contraction in US supply has been met by a simultaneous surge in LNG export demand. In 2021, feedgas deliveries have averaged over 10.5 Bcf/d, a nearly 45% increase from 2020.
For Haynesville producers, the dual trends have not only lifted gas prices, but also bolstered demand for the basin's supply, which has benefited from its strategic proximity to the Gulf Coast LNG export market.
At the Carthage hub, where much of the Haynesville's production is delivered, gas prices have traded into the mid-$5s/MMBtu recently. Forwards markets are bracing for much of the same, pricing the calendar months through March at an average $5.71/MMBtu, S&P Global Platts' M2MS data shows.
Strong cash and forwards prices have buoyed wellhead economics in the Haynesville, further bolstering the outlook for drilling and production there.
In September, half-cycle internal rates of return in the basin are now estimated at close to 45%, making its profitability competitive with oily plays like the Permian, Bakken and Eagle Ford.
The updated upstream metrics, recently published by Platts Analytics, also show breakeven prices in the Haynesville continuing to improve – now estimated at close to $2.65/MMBtu – slightly below current estimates for the Utica and Marcellus dry windows.
High gas prices and strong wellhead economics have only reinforced already bullish predictions for the basin's production growth. Recent forecasts from Platts Analytics show production from the Haynesville continuing to grow through the fourth quarter, surpassing 14 Bcf/d by mid-2022.
Recently installed midstream capacity expansions should help the basin to continuing growing too.
According to Platts Analytics, the addition of DTE Midstream's Louisiana Energy Access Project, or LEAP, Gulf South Pipeline's Index 99 expansion project and Midcoast Energy's CJ Express have all been critical recent expansion for Haynesville producers. Combined, the pipelines have added upwards of 2.75 Bcf/d in new midstream capacity, helping to debottleneck the basin's growing production.