US Haynesville Most at Risk from Low Prices: Rystad
The Haynesville shale gas basin in Louisiana and Texas is most at risk of seeing production declines if US Henry Hub prices remain range-bound between $1.80 and $1.90/mn Btu, Norwegian consultancy Rystad Energy said in a May 12 report.
The Haynesville basin, Rystad said, is “arguably” the most important for LNG exports from the US because it is so close to existing and planned Gulf Coast export terminals. But production could fall by up to 20% – from about 12.5bn ft3/day – by 2023 if Henry Hub prices remain stalled below $2/mn Btu.
If Henry Hub remains in the $1.80-$1.90/mn Btu range, “we expect only an average of 20 horizontal wells per month will be put on production (POP),” the report said. “Haynesville gross gas output will then fall from 12.5bn to 10bn ft³/day throughout 2020-2022, stabilising in 2023.”
Mid-morning Central Daylight Time May 12 the June contract price at Henry Hub on the Nymex exchange – a proxy for the physical spot price – stood at $1.77/mn Btu, down a nickel on the day.
Rystad’s own base-case forecast sees Henry Hub trending steadily higher to reach near $3/mn Btu in 2022. A price in the $2.70-$3.00/mn Btu range could push basin production past 15bn ft3/day by 2023, but it could also undermine US LNG economics and weaken its international demand.
A Henry Hub price in the $2.20-$2.40/mn Btu range is needed if Haynesville operators are to maintain POP activity at around 30 wells/month in the medium term. That price would match nearly perfectly maintenance requirements in the basin and allow production to remain close to 12.5bn ft3/day over the next two or three years.
“As of today, we have not seen any meaningful production slowdown in Haynesville gas output – yet,” said Artem Abramov, Rystad’s head of shale research. “With the declining trend, activity is set to fall below maintenance requirements in the next few months.”
But he said there is still a possibility that well productivity could improve as operators high-grade their best drilling prospects.
The total number of quarterly horizontal well spuds has already declined from about 110-120 per quarter between Q4 2017 and Q3 2019, the report said, to about 85 spuds in the first quarter. At the current rig count – Baker Hughes reported 32 active gas rigs in the Haynesville in its most recent count, down from 49 at the start of the year – Q2 spuds will likely fall to around 75, Rystad said.