Natural gas production in the Lower 48 U.S. declined for the first time this year in June. According to the EIA’s 914-Survey month-on-month output fell by 1.2% or 0.81 Bcf/day. Production in Wyoming continued a 7-month slide and posted the largest decline of the largest producing states for the month; down 0.38 Bcf/d or 5½%. Natural gas production in the Federal Offshore Gulf of Mexico continued a 4-month string of monthly declines, down by 0.30 Bcf/d or 4.8% and in New Mexico production fell for the first time in five months, but June’s 4.2% decline pushed production to the lowest level, 3.62 Bcf/d, since 1992.
As one would expect, the pullback in production coincided with a weak cash market. From March through May, gas for next day delivery at the Henry Hub in Erath, La. averaged $4.158, or 2½ cents a dekatherm below the average on the Nymex.
At the same time, the futures position on the Nymex held by producers, processors and other commercial users averaged a net short position of 12,413 contracts over the three months, but shifted (peak to trough) from a net of 24,399 short contracts (March 12th) to 348 long contracts (April 23rd).
Thus, as those hedges were unwound, production surged. To wit, in between February and May production in the Lower 48 hit four consecutive records, rising by 3.6% to 65.1 Bcf/d. In June production dipped to 64.3 Bcf/d, thanks in part to shut-ins related to Hurricane Alex in addition to poor economics. As temperatures surged at the beginning of the summer, prices for gas surged, but so too did producers' willingness to sell into the rally.