Source: S&P Global Platts RADAR, December 20, 2018

S&P Global Platts analysts Luke Jackson, John McManus, Andrew Cooper,

After hitting a new high of 31.7 Bcf/d on December 5, Northeast
production has tumbled more than 0.7 Bcf/d for no clear reason. With
maintenance and freeze-offs likely out of the question, evidence
suggests the dip may be tied to a slowdown in drilling in late
summer that is finally beginning to manifest itself now. If the
recent dip is indeed a function of a drilling slowdown rather than a
short-term blip in production, it would tighten not just balances
this winter, but also next summer, resulting in upward pressure on
regional prices and at Henry Hub. 

Northeast production peaked on December 5 at 31.7 Bcf/d, but has
averaged a mere 31 Bcf/d since that mark and fell as low as 30.4
Bcf/d on December 14. There are no major maintenance events in
the region driving the production drop. Further, while recent
temperatures in the Northeast have dipped as low as 20 degrees
on December 8 following the production peak, Platts does not
believe freeze-offs are driving the decline given freeze-offs in
the Northeast have historically occurred when temperatures dip
into the single digits or lower.

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As well, Platts utilized pipeline specific gas quality data for major
Northeast production pipelines to determine if the recent fluctuations
in regional production can be tied to changes in the heat content of
the natural gas stream. Gas quality data from TCO, Dominion, Rover,
Tennessee and TETCO shows that the heat content of the gas
hitting these five pipelines has been relatively consistent since
November, making it unlikely to explain the nearly 1 Bcf/d decline
from the start of December to the most recent seven days.

With that in mind, Platts believes the most recent production drop
in the Northeast may be tied to a slowdown in drilling in late summer
that is starting to be reflected in this month’s production volumes.
We note that both the August 2018 and September 2018 periods saw
a large decline in wells drilled, and equally important, wells
completed.

As Northeast wells typically hit peak production roughly 3-5
months after they are brought online (based on average type
curves for the Utica), it would follow that the wells completed in
August and September should be hitting their peak in December and
then entering their natural decline phase thereafter.

That would explain the march up to 31.7 Bcf/d on December
5 and then the quick drop off in production immediately following
that peak, despite no maintenance events and little evidence of freeze offs.
It would seem reasonable that producers tried to maximize
production from those wells that were completed in August/
September and were peaking in late November/early December
during the recent price rally above $4. 

However, of note, production then began to dip before prices fell 
back below $4, suggesting operators maximized production from 
those wells completed in August/September and could no longer
keep production afloat.

Where does Northeast production go from here? With gas
still hovering around $4, it would follow that Northeast producers
would make every effort to bring on as much production as possible...
if they could and if they had the capital to do so. However, it does
not appear there is a ready supply of completed wells in inventory
available to respond to the price increase given the fact production
is falling in the face of some of the highest sustained gas prices
in over three years. Platts does estimate that as of mid-September
there are approximately 400 DUC (drilled and uncompleted) wells
in the Northeast – these are wells that have been drilled but not
completed, and for which the lag between drilling and completion is
beyond the typical timeline for the region (roughly 3-4 months). These
wells are not capable of responding to prices immediately.

It is clear in the past week that producers have been unable to
maintain the production momentum witnessed in November, a likely
indication that a flattening out of Northeast production may be in
store to start 2019.

This is an excerpt from S&P Global Platts RADAR, December 20, 2018 issue.

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Upstream Activity Data for North America 

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