US gas E&Ps see supply mismatch coming as LNG production climbs

By Jeremy Beaman  February 21, 2025 spglobal.com

US gas producers anticipate that rising demand in 2025 will outpace operators' capacity to respond with additional supply considering the industry's conservative approach to expanding drilling activity.

A number of the public gas-focused E&Ps that have reported year-ahead capital plans to date have said they don't intend to increase activity and grow production meaningfully in 2025. This trend could result in a situation where supply lags the ramp-up in demand, potentially contributing further upside to prices, several executives have said during their 2025 outlook discussions with analysts.

"I think everybody has been very cautious to say 'we're not going to oversupply this market,' and maybe we undersupply it because we're so cautious," Roland Burns, CFO for Haynesville Shale producer Comstock Resources, said Feb. 19 during the company's quarterly earnings update.

Activity trends

Low pricing in 2024 led operators to trim drilling activity and curtail production. As of Feb. 5, producers operated 36 rigs in the Haynesville and 27 rigs in the Appalachian Basin, according to S&P Global Commodity Insights data. A year ago in the corresponding week, the two basins had 51 and 39 units operating, respectively.

Production levels have risen over the last few months as operators respond to higher seasonal gas demand and improved prices. Output has been in the 104-106 Bcf/d range for much of the year to date, excluding periods of decline associated with the series of cold blasts that have hit the Lower 48 since early January.

After dropping two rigs in early 2024, Comstock does intend to add the same number back to seven rigs total in 2025 because gas pricing has improved, the company said Feb. 19. Production guidance provides for around 1.35 Bcfe/d for the full year, unchanged from Q4 2024 output.

In Appalachia, operators are pursuing roughly flat production. Thanks to efficiency gains, EQT will be able to drop a frac crew in April and turn fewer wells to sales in 2025 while still maintaining current output, executives said Feb. 19. Management seeks to avoid "tipping the business into growth mode," CEO Toby Rice said.

Several major operators, including Expand Energy and Range Resources, have yet to report. Among EQT's peers in Appalachia to do so, neither Antero Resources nor CNX Resources plan to chase substantial production growth.

At the same time, executives say they see supply falling behind as new incremental demand comes from the LNG sector. Both Venture Global's Plaquemines LNG facility and Cheniere Energy's Corpus Christi Stage 3 expansion are now producing LNG.

Over the last week, total US feedgas demand averaged over 16 Bcf/d, where it is expected to stay on average throughout 2025, Commodity Insights showed. Comparatively, in 2024, average feedgas demand for the full year was estimated at 13.2 Bcf/d.

CFO Michael Kennedy of Antero Resources said the producer expects to see "a significant call on natural gas over the next 12 months as new LNG facilities ramp up."

"The ability for supply to respond to this increase in demand is likely to be challenged given the low industry activity levels we have today," Kennedy said Feb. 13 during the company's Q4 2024 earnings call.

Market outlook

The forward market shows a rising premium on gas throughout the year. Over the last month, the Platts-assessed M2MS 2025 Henry Hub forward strip climbed from $3.77/MMBtu on Jan. 21 to $4.35 on Feb. 20 when including the balmo February contract.

In the near term, operators say revenues are improving on the basis of higher seasonal gas demand and the associated price boost. The market will need to show fundamental tightness for longer before increasing drilling and completion spending, several executives have said.