EQT Corp., the nation’s largest natural gas producer, said Monday it would curtail up to 40 Bcf of production by the end of the month, reversing guidance it issued only three weeks ago as prices continue to trade below $2.00/MMBtu.
Management said the company began to curb 1 Bcf/d late last month “in response to the current low natural gas price environment resulting from warm winter weather and consequent elevated storage inventories.”
The company plans to maintain the curtailment throughout March and “reassess market conditions thereafter,” which is expected to result in 30-40 Bcf net production cuts during the first quarter.
The move sent Henry Hub futures higher Monday, when the prompt month gained 8 cents to close at $1.91. Both futures and cash prices have been hampered by surging production, strong storage inventories and mild winter weather. Henry Hub fell below $2 in early February and has stayed there since.
Weekly natural gas cash prices sank to their lowest levels of the year last week as weakening weather-driven demand outweighed supportive trends in production and liquefied natural gas exports.
NGI’s Weekly Spot Gas National Avg. for the February 29 to March 1 trading period for March gas delivery fell 11.0 cents to $1.440. Spot prices failed to follow Henry Hub higher last week, which closed up by about 5% as production curtailments are beginning to move the market.
EQT’s announcement was a reversal from management’s sentiment last month, when executives said they had no plans for production cuts, suggesting the market is not as oversupplied as many think. At the time, the Appalachian pure-play guided for 2.2-2.3 Tcfe of production this year.
However, persistently weak gas prices have led more exploration and production companies to make cuts to drilling activities. Chesapeake Energy Corp. led the charge, announcing a significant 15% cut last month.
Lower 48 production has slowed from a weekly pace above 105 Bcf/d in late January to less than 103 Bcf/d in late February.
Some of the more noticeable production cuts have come in the Appalachian Basin, according to Mobius Risk Group. Pipeline flows for the basin indicate its output had slowed to around 33 Bcf/d in late February, down from 34-35 Bcf/d at the start of the month.
Mobius analysts said the 2 Bcf/d reduction indicates “volumes are being curtailed rapidly in today’s very low price environment. This is proving to be yet another example of production rationalization at or below $2.00.”
Wood Mackenzie Americas Vice Chair Ed Crooks wrote in a note last week that gas prices would eventually rebound from the supply cuts.
“Henry Hub prices cannot stay below $2/MMBtu forever, because supply will be throttled back to rebalance the market. It is already starting to happen,” he said.
