The Haynesville gas basin, arguably the most important basin for liquefied natural gas (LNG) exports in the US due to its proximity to existing and planned terminals, is set for a 20% decline in output towards 2023 if Henry Hub prices average at $1.80-$1.90 per million British thermal unit (MMBtu), a Rystad Energy analysis reveals. Henry Hub prices are currently within the $1.80-$1.90 range, and if they maintain current levels until 2023, gas production in Haynesville is set for a decline in activity. As a result, we expect only an average of 20 horizontal wells per month will be put on production (POP). Haynesville gross gas output will then fall from 12.5 billion to 10 billion cubic feet per day (cfd) throughout 2020-2022, stabilizing in 2023. In a Henry Hub environment of $2.20-$2.40, we see the running rate of activity at around 30 horizontal wells per month in the medium-term. Such an activity level delivers almost a perfect match with maintenance requirements, with production remaining close to 12.5 billion cfd in 2020-2023. Higher gas prices are sufficient to trigger continuous production growth in Haynesville. In a $2.70-$3.00 Henry Hub environment, the running rate of activity is set to increase to 40 wells per month — sufficient to see another 3 billion cfd added by Haynesville before the end of 2023. "As of today, we have not seen any meaningful production slowdown in Haynesville gas output — yet. With the declining trend, activity is set to fall below maintenance requirements in the next few months. "Nevertheless, we should not forget about the likelihood of continuous productivity improvements, which always accompany declining activity due to the renewed focus on the best projects," said Artem Abramov, Rystad Energy's head of shale research. The total number of horizontal spuds per quarter has already declined from approximately 110 to 120 wells per quarter in 4Q17-3Q19, to 85 wells in 1Q20. With the current rig count, the basin will likely be down to 75 horizontal spuds in 2Q20. The number of POP wells has lagged behind spuds in 2017-2019, but everything changed in 4Q19-1Q20 as operators began diving into their DUC inventory (a normal trend when the drilling market begins to decline). In 1Q20, we estimate that Haynesville operators put 94 horizontal wells on production, but the recent decline in fracking will likely result in about a 15% contraction in POP activity in 2Q. Among all major unconventional oil and gas basins in the US, Haynesville exhibits the highest production contribution from private operators. As of 1Q20, private operators produced 7.2 billion cfd of gross gas in the region, almost 60% of total output. Private operators also drove nearly all recent growth in the region. As of 1Q20, short-term growth is probably over for dedicated public operators and supermajors – both groups exhibit little to no growth on a year-over-year basis, with a growing number of operators managing a plateau. In turn, many private operators had a back-loaded growth schedule in 2019, and the group as a whole pushed its year-over-year growth to a record high level of approximately 1.5 billion cfd, a level previously achieved in 2018. "The pace of year-over-year growth in Haynesville has decelerated since mid-2019. However, it is clear that it may take some time before the low gas price environment, and the decline in drilling and completion activity, pushes basin wide output downwards," Abramov concludes. Rystad Energy's own base case scenario has Henry Hub prices steadily recovering to nearly $3 per MMBtu in 2022. — Rystad Energy
