February STEO Slashes 2023 Henry Hub by Another 30% to $3.40/MMBtu
Once a month, the analysts at the U.S. Energy Information Administration (EIA) issue the agency’s Short-Term Energy Outlook (STEO), their best guess about where energy prices and production will go in the next 12 months or so. We sometimes poke good-natured fun at the EIA because one month, their predictions go up, the next month, down, etc. What about the latest STEO dart board, published yesterday? EIA slashed the price of natural gas at the Henry Hub another 30% from the previous monthly STEO, saying natgas will average $3.40/MMBut in 2023, down from a forecast of $4.90 the month before. EIA’s new average price, if it holds, would be 50% lower than 2022’s average of $6.42/MMBtu.
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The Texas Independent Producers & Royalty Owners Association (TIPRO) recently released the eighth edition of the organization’s “State of Energy Report” (full copy below). The report gives a detailed analysis of national and state trends in oil and natural gas employment, wages, and other key economic factors for ?the energy industry in 2022. The U.S. oil and gas industry employed 948,943 professionals in 2022, according to the report. That’s down from the all-time high of 1.3 million in 2019 but up 39,721 from 2021. When adding direct and indirect jobs, the oil and gas industry supported more than 19 million (!) jobs last year.
Sometimes we (collectively) need to zoom out for a look at the bigger energy picture. Our little piece of the energy puzzle, production of natural gas, NGLs, and even oil here in the Marcellus/Utica, is part of a much larger picture of energy supply and demand. The left has convinced most of the human population that we MUST “transition” to so-called renewables to power the world or all is lost. Because of that false narrative now embedded in the brains of most people, governments are doing crazy things like banning natural gas in new construction (ala California and New York). Private companies–drillers and midstream companies–are reticent to invest big money in more drilling and infrastructure if, in the next 10-15 years, that investment will cease to provide a return. Companies are behaving rationally, given the irrational insanity around them, by NOT investing–even if energy prices are super high right now. Who can blame them?
On December 23, 2022, natural gas consumption in the U.S. Lower 48 states reached a new, all-time daily record high of 141.0 billion cubic feet (Bcf). The previous record was set in January 2018. As you may recall, we had a cold snap and nasty winter weather in late December, driving up the use of clean, abundant, and still relatively cheap natural gas. Gas for heating saw a big increase in use, along with increased demand from gas-fired power plants. Combined, it drove usage to a new all-time high.
The mighty BP (formerly British Petroleum) is an oil and natural gas company trying to convert itself into a renewable energy company. We’d say they’re failing, big time. BP has gone screwy. It’s a European company and has bought into the false narrative that fossil energy is on the way out due to concerns over mythical global warming. In BP’s recently published Annual Energy Outlook for 2023 (full copy below), the company predicts (once again) that fossil energy is on the way out, but now it’s happening even faster than before because of (a) Putin’s war on Ukraine, forcing Europe to adopt unreliable renewables even quicker than before, and (b) Biden’s so-called Inflation Reduction Act, pouring billions into the effort to smash fossil energy and elevate electric-everything.
The number crunchers at the U.S. Energy Information Administration (EIA) have analyzed proved reserves data for 2021 (the most recent year available) and have determined that proved reserves soared, up by 32% from the previous year. Why? Five of the eight states with the most proved reserves of natural gas each reported new record volumes, driving the growth nationally. And one of those five is a Marcellus/Utica state: West Virginia.
Purely by happenstance, we stumbled across an interesting “working paper” published by the National Bureau of Economic Research. The paper (we’d call it a study) is titled “Negotiations of Oil and Gas Auxiliary Lease Clauses: Evidence from Pennsylvania’s Marcellus Shale” (full copy below), first published in December but subsequently updated in January. Researchers scanned and (using software) analyzed nearly 60,000 leases signed in the Marcellus Shale Play of Pennsylvania. They learned some interesting things about PA leases. One of the main conclusions (eye-opening for us) is that getting more money for your lease is not necessarily tied to whether or not nearby wells are good producers. At best, better lease terms have a “weak relationship” to the performance of other wells in a given geography. What is the secret to getting more favorable lease terms?
A week ago, MDN told you that the Bidenista who heads up the Consumer Product Safety Commission (CPSC) was floating a trial balloon of banning the use of natural gas stoves across the entire country (see 
Natural gas stoves are used in roughly 40% of households in the United States. The hard-left Bidenistas who control the U.S. Consumer Product Safety Commission are floating a trial balloon that they want to ban them all, forcing you (if you have one) to replace it with an electric stove. The stated reason for forcing a change is that gas stoves supposedly emit cancer-causing, and asthma-causing, chemicals. The Bidenistas are attempting to use fear as a weapon to convince people to go along with this tyranny. Don’t let them.
S&P Global Commodity Insights published an analysis article speculating on the overall level of natural gas production we can expect to see in the U.S. in 2023. According to S&P’s analysts, weaker prices for the NYMEX Henry Hub futures price expected this year, along with recent weakness in the internal rate of return (IRR) for companies, are combining to lower the amount of growth in natgas production we might otherwise have experienced. S&P isn’t saying we’ll go backward–with less production. It’s saying production won’t grow as much as it could have if not for these negative factors.
It’s been a while since we’ve updated rig count numbers–mainly because the most reliable source we can find about basin numbers comes from S&P Global Commodity Insights (based on Enverus rig data), and S&P has not provided an update for a few months. This week they did update the number, and they are interesting. According to S&P’s analysis, based on Enverus data, the Haynesville Shale in northern Louisiana and eastern Texas (the main competitor to the Marcellus/Utica) is showing 81 active drilling rigs. That is an astonishing number, up some 37% over the same time last year. The current active rig count in the M-U, according to S&P, is 47 (with 33 rigs operating in the Marcellus and 14 in the Utica). The Haynesville is running 1.7 rigs for every 1 rig in the M-U. This is the worst imbalance we’ve seen to date.