U.S. dry natural gas production and rig count continue to grow from pandemic lows

Our June Short-Term Energy Outlook (STEO) estimated that production of dry natural gas in the United States averaged 92.2 billion cubic feet per day (Bcf/d) during May 2021, compared with 87.8 Bcf/d in May 2020. The record high for U.S. natural gas production was set in December 2019, when dry production averaged 97.0 Bcf/d. Aside from February 2021, when weather-related well freeze-offs contributed to natural gas production shut ins, May 2020 marked the low point for U.S. natural gas production so far during the pandemic. As a result of COVID-19 mitigation efforts and warmer weather, natural gas demand diminished, which lowered prices. We expect dry natural gas production to continue to grow in the United States through the end of 2022, averaging about 94.8 Bcf/d for November and December 2022.

In August 2020, earlier in the pandemic, the number of active drilling rigs in the United States fell to 244, the lowest level since at least 1987, according to data from Baker Hughes Company. Drilling activity began to rise in the last quarter of 2020, increasing dry natural gas production. As of June 8, the reported total number of active rigs in the United States had risen to 461, and 96 of those active rigs were directed at drilling for natural gas (compared with a low of 68 in July 2020). Oil-directed activity can also increase natural gas production because of the associated natural gas recovered from rising oil production.

The U.S. oil and natural gas plays that tend to focus on producing natural gas include the Marcellus and Utica formations in the Appalachia Basin and the Haynesville formation in the North Louisiana Salt Basin of northeast Texas and northwest Louisiana. The increase in active natural gas rigs has occurred primarily in the Haynesville formation. Haynesville’s proximity to liquefied natural gas export terminals and industrial demand along the U.S. Gulf Coast has made its natural gas production more valuable. The number of active natural gas rigs in the Haynesville as of June 8 stood at 48 rigs, or 9% lower than the same week in June 2019. Drillers have increased natural gas rig activity somewhat from 2020 lows in other formations, but natural gas rig activity has not returned to 2019 levels.

Principal contributor: Nicholas Skarzynski