After treading near the 79-Bcf/d level this past spring, Lower 48 natural gas production surged about 1.5 Bcf/d higher in the last three weeks of June to record highs approaching 82 Bcf/d by month’s end. The supply gains suspended the market’s bullish view of the persistently large storage deficit compared with last year and the five-year average and reeled in the prompt CME/NYMEX Henry Hub futures contract from the $3/MMBtu mark — at least for now. Where did the gains occur and how much of that influx truly is new production versus volumes returning from seasonal maintenance? Today, we examine the drivers behind the recent production jump.
It’s no surprise that Lower 48 production has been on a tear lately. As we noted in Fill Me Up, Buttercup, the market this past winter was expected to add more than 4 Bcf/d of pipeline takeaway capacity in the Northeast. Much of that has come to fruition, with new capacity added as recently as June 1 on Rover Pipeline (Are You Ready, Part 2). Moreover, rig counts (black line in Figure 1) in recent weeks have been at the highest levels since March 2015, with the June 2018 average count coming to 1,056 rigs.