How Does US Natural Gas Production Impact Prices?

US natural gas production 

PointLogic estimates that US dry natural gas production fell 0.7% to 80 Bcf (billion cubic feet) per day on July 12–18. However, the production has risen 11% year-over-year.

According to Reuters, US dry natural gas production in the lower 48 US states has averaged a record high of 80.7 Bcf per day during the past 30 days. On a daily basis, US dry natural gas production hit a new record of 81.4 Bcf per day on July 5. However, production fell 0.1% to 79.9 Bcf per day on July 18 from the previous day.

How Does US Natural Gas Production Impact Prices?

Active US natural gas (UNG) futures rose 1.8% to $2.77 per MMBtu (million British thermal units) on July 19 due to several bullish drivers. The First Trust Natural Gas ETF (FCG) aims to track the performance of an index of companies mainly involved in natural gas exploration and production. FCG rose 1.2% on July 19. Similarly, Cabot Oil & Gas (COG), Gulfport Energy (GPOR), and EQT (EQT) rose 2%, 1.53%, and 1.5%, respectively, on July 19.

Monthly US dry natural gas production hit a record high of 82.3 Bcf per day in March, according to the EIA. The production was at 79.67 Bcf per day in April. Active US natural gas futures hit almost a 13-month high on January 29. Since then, the prices have fallen ~23.7% partly due to increased production and mild weather.

Drivers of natural gas output  

Higher WTI crude oil prices and the improving natural gas pipeline capacity in the US led to an increase in the natural gas output. Natural gas is often an associated product of the crude oil produced in US shale formations.

WTI crude oil futures have risen ~63% since June 21, 2017, due to several bullish drivers. As a result, higher oil prices could increase the number of active US oil rigs, which could increase oil and gas production. Higher natural gas supplies could pressure natural gas prices.

Natural gas production estimates 

US natural gas production averaged 73.6 Bcf per day in 2017. According to the EIA, the US dry natural gas output could average ~81.34 Bcf per day in 2018 and ~84.46 Bcf per day in 2019. US natural gas output’s annual average could hit a new record in 2018 and 2019 if the projections are achieved.

Impact 

The record US natural gas output could weigh on natural gas prices.

Next, we’ll discuss US natural gas consumption.