In-depth analysis
October 24, 2024
Data source: U.S. Energy Information Administration, Short-Term Energy Outlook
Note: The formations incorporated in our U.S. shale natural gas production estimates hinge upon identified tight and shale formations. Year-to-date 2024 encompasses January through September.
A subtle yet significant shift has emerged within the U.S. natural gas landscape. The production from shale and tight formations—a substantial 79% of total dry natural gas output—has witnessed a slight downturn during the first three quarters of 2024, contrasting the corresponding stretch of 2023. Should this pattern persist, we would be witnessing a momentous occasion: the inaugural annual reduction in U.S. shale gas output since the initiation of our records in the year 2000.
Between January and September 2024, total shale gas production dipped around 1%, landing at an average of 81.2 billion cubic feet per day (Bcf/d). Meanwhile, other sectors of U.S. dry natural gas production rose by approximately 6%, reaching 22.1 Bcf/d. Cumulatively, the total dry natural gas production for the U.S. during the aforementioned months averaged 103.3 Bcf/d, remaining essentially unchanged from the same period a year prior.
The driving forces behind this production slump can primarily be traced back to the Haynesville and Utica plays, both of which experienced notable declines. In the span from January through September 2024, Haynesville’s shale gas production fell by a staggering 12% (1.8 Bcf/d), while the Utica play saw a reduction of 10% (0.6 Bcf/d) in output compared to the previous year. Conversely, the Permian play bucked the trend, with a 10% increase (1.6 Bcf/d) in shale gas production. Notably, the Marcellus play, which spearheads shale gas production in the U.S., maintained a steady output.
Delving into the specifics, the Haynesville play—nestled in the northeastern reaches of Texas and the northwestern corners of Louisiana—represents a dry natural gas formation. In contrast, the Utica and Marcellus formations, situated within the Appalachian Basin, yield not only dry natural gas but also lease condensate. In all these regions, the incessant fluctuation of natural gas prices fundamentally steers the rhythm of drilling and production activities. Since August 2022, the benchmark Henry Hub daily natural gas price has been on a downward trajectory, plummeting to unprecedented lows in the first half of 2024. Such a drastic decline has rendered natural gas well drilling increasingly unprofitable, particularly within the Haynesville. A number of operators in both the Haynesville and the Appalachian Basin have opted to halt their gas production in reaction to these historically low prices, with intentions to continue these cutbacks into the latter half of 2024.
On a contrasting note, the Permian play, straddling western Texas and southeastern New Mexico, chiefly transforms associated gas from oil wells where the impetus for drilling hinges on oil prices rather than natural gas. Interestingly, the Permian has seen a surge in natural gas output this year, mirroring the rise in oil production.
As of September, shale natural gas output in the Utica stood at 5.6 Bcf/d—lightyears away from its halcyon monthly peak of 8.3 Bcf/d recorded in December 2019, and even 10% shy of its average production of 6.2 Bcf/d in 2023. Wells in the Utica, buried beneath the Marcellus at depths ranging from 5,000 to 11,000 feet, present a more daunting drilling challenge due to their depth—rendering them pricier to develop.
The Haynesville, at even greater depths of 10,500 to 13,500 feet, faces similarly elevated drilling costs. Recorded production for the Haynesville in September 2024 dropped to 13.0 Bcf/d, a notable 14% dip from its peak in May 2023. Not to be overlooked, the Haynesville remains the nation’s third-largest shale gas producer, following the Marcellus and Permian plays. Back in 2023, its shale gas production averaged 14.6 Bcf/d, constituting 14% of total U.S. dry natural gas output.
Data source: Refinitiv Eikon and Baker Hughes Company
Note: Prices adjusted for inflation, reflecting the September 2024 Consumer Price Index.
Notably, the Henry Hub benchmark natural gas price has nosedived by an astonishing 79% from its inflation-adjusted zenith of $9.39 per million British thermal units (MMBtu) in August 2022 to a mere average of $1.99/MMBtu by August 2024. Throughout this year, the average price hovered at $2.10/MMBtu—starkly contrasting the inflation-adjusted averages of $6.89/MMBtu in 2022 and $2.62/MMBtu in 2023. This relentless decline in natural gas prices has wreaked havoc on the economics of production within dry gas formations, forcing producers to shut in production and drastically reduce the number of active drilling rigs.
In a responsive dance to fluctuating prices, producers often ramp up or curtail the number of operational drilling rigs. Data from Baker Hughes highlights a steady decline in natural gas-focused drilling rigs within the Haynesville, Utica, and Marcellus plays since late 2022. As of September 2024, an average of 33 rigs were engaged in the Haynesville, translating to a staggering 53% reduction from January 2023. This drop represents the lowest operating rig count in the Haynesville since July 2020.
In the Utica, an average of just seven rigs were operational in September 2024, which is less than half that of January 2023, while the Marcellus saw approximately 25 rigs—about 36% lower than the same point in January 2023. Although newer wells have shown enhancements in productivity, the plummeting rig counts have undeniably contributed to a overall downturn in production output.
In our latest Short-Term Energy Outlook, we anticipate total U.S. dry natural gas production will average 103.5 Bcf/d in 2024, reflecting a slight decrease from 103.8 Bcf/d in 2023, with modest growth expected to resume in 2025, projecting to reach 104.6 Bcf/d.
Principal contributors: Katy Fleury, Corrina Ricker, Kenya Schott