Summer Doldrums In Haynesville Gas Production Not Expected To Last

Originally published on on May 28, 2024

Haynesville’s contribution to the coming uplift in U.S. LNG needs would make it the dominant provider due to its close proximity to the new-build LNG trains.

The U.S. is a huge producer of natural gas—no. 1 in the world and nearly a quarter of the world’s production. The country is a big exporter of liquefied natural gas (LNG)—also no. 1 in the world. The Haynesville (14 Bcfd or billion cubic feet per day) is a bountiful source of natural gas, and no. 3 in the U.S. after the Marcellus (27 Bcfd) and the Permian (18 Bcfd). The Haynesville straddles the border between Texas and Louisiana and is classified as a shale-type of resource—as are the Marcellus and the Permian.

The Haynesville recovered nicely from the pandemic of 2020, improving from 12.0 Bcfd in 2020 to 16.3 Bcfd in May 2023, a surge of 36%. Companies are making good wells in Haynesville. A recent February completion was 31 MMcfd in the western portion of the play, from a 2-mile lateral, but has yet to reach its peak flowrate. 

Reasons For The Gas Fall In Haynesville

But recently Haynesville has dropped the ball. What happened to the Haynesville, and will it recover? The Haynesville dropped from 16.3 Bcfd in May 2023 to 13.6 Bcfd in May 2024—a 16.6% drop. Let’s look at some reasons for this fall.

First, the price of natural gas fell. After the energy shocks of Russia’s war in Europe, the Henry Hub prompt futures fell and touched $2/Mcf (thousand cubic feet) in March 2023 (Figure 1).  Note that Mcf and million Btu are essentially equivalent units. The daily gas price fell in February 2024 to an unimaginable $1.60/Mcf. But beginning in 2023, gas price stays mostly between $2 and $3/Mcf—historical and projected—until the end of 2025.

Figure 1. Natural gas price 2020 – 2026. Source: EIA Today in Energy.
Figure 1. Natural gas price 2020 – 2026. Source: EIA Today in Energy.

The second reason is the break-even effect. The average gas price has remained at about $2.35/Mcf for 2024, and this falls below the average breakeven price of $2.67/Mcf, as estimated by S&P Global. Not only does an average well make a loss, but it manifests as a larger loss because operators would like to get a 30% return for class 1-2 wells, which would push the break-even price up to $3.21 – $3.57.

Many producers, especially private producers, are sensitive to their profits. If they can’t reduce operating costs, they tend to shut in wells until the price of gas rises enough. So gas production falls.

Reasons For Optimism In Haynesville

There are three reasons. The first is operators in Haynesville, as in other shale resources, are striving to lower CapEx while improving production. And they are succeeding. The rig count has dropped (by around 40%) a lot more than production has fallen (15%). Fewer rigs means rigs can produce gas more efficiently.

Aethon Energy, a company out of Dallas, has a modern approach to reducing costs. By using new tools, especially AI (artificial intelligence), they are connecting and analyzing data from many sources to improve drilling and completion results. Such data includes drilling, geo-steering, logs, fiber optic, as well as well treatment designs and actual performance.

It seems too good to be true, as AI assistance in other fields demonstrates. Chief operating officer at Aethon Energy, Andrea Wescott Passman, said it beautifully, “We have redesigned almost every step of the well from spud through drilling, casing design and frac design. Our understanding before was based on assumptions or models. Now we are getting real data and real information and it’s changing the way we think about these wells. We are seeing finding and development costs come down significantly because of it.”

The results are dramatic. Drilling and stimulation times have been reduced substantially, even when designing longer laterals and higher proppant amounts. Drilling days have been cut almost in half, and seven stages of fracking implemented per day, compared with five previously, even when pumping at higher rates.

The second reason is geopolitical. The war in Ukraine is ongoing, and the war in Gaza adds to world insecurity, and LNG is the best way to ensure energy security as the war in Ukraine has taught Europe and the West.

The third reason is the need by East Asia countries to import LNG as a bridge fuel. The advantage is cleaner natural gas, which has been produced and distributed through pipes that have no leaks, can replace dirtier coal-fired power plants, and reduce the overall greenhouse gas (GHG) emissions.

The Role Of LNG

The last two reasons will continue the golden age for LNG, especially for exports from the U.S.

LNG capacity in the U.S. is about 13 Bcfd now. But is predicted to be 25 Bcfd by 2030. The uplift would be 12 Bcfd. Golden Pass (18 mtpa or million metric tons per annum) is to come on in the second half of 2024, Venture Global’s Plaquemines (10 mtpa) in early 2025, and Stage 3 of Corpus Christi (10 mtpa) in early 2026. This is a lot of additional LNG capacity along the Gulf Coast (Figure 2).

According to East Daley Analytics, the LNG capacity uplift would be 17 Bcfd, which is a bit higher, between 2023 and 2030. They also said a fifth of total U.S. demand would be feed gas for LNG, and this would be greater than demand for power plants or residential usage.

The critical insight from East Daley is Haynesville’s contribution to the uplift in U.S. LNG needs. They state Haynesville would provide 13 Bcfd out of the total U.S. gas demand increase between now and 2030. Haynesville would be the dominant provider due to its proximity to the new-build LNG trains (Figure 2).  

This overcomes the cost of gas which is expensive because the average resource in Haynesville is close to 12,000 feet deep which makes drilling expensive. Gas from the Marcellus in the Appalachians is cheaper but it’s a long way away. Gas is also cheaper in the Permian of west Texas, which is closer, but there are transmission problems for associated gas. 

One area that is already supporting the potential future uplift in Haynesville gas is pipeline transmission. Under construction are pipelines with a capacity of about 13.5 Bcfd while other such projects up to 20 Bcfd have been approved (Figure 2).

Figure 2. Pipelines planned to provide gas for three new LNG trains (in blue). Courtesy: Hart Energy. Source: EIA
Figure 2. Pipelines planned to provide gas for three new LNG trains (in blue). Courtesy: Hart Energy. Source: EIA
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