Henry Hub front-month prices fell steeply across winter 2022/23 following a large domestic supply overhang that began with last year’s outage at the Freeport terminal and was compounded by mild winter weather across North America. Prices have since remained subdued, hovering between $2 – 3/mmbtu for a substantial portion of the year, in stark contrast to the peak of the 2022 crisis when they reached $7 – 9/mmbtu.

The U.S. gas rig count, as tracked by Baker Hughes, has followed a predictable downward trajectory in response to these weakened prices, falling by ~25% since the outset of January and marking a 17-month low.

Declining gas-directed drilling activity naturally raises the prospect of a slowdown in U.S. gas production, which would put downward pressure on the domestic storage surplus and lift prices at Henry Hub. Nevertheless, U.S. gas production has remained resilient this year. This is due to enhancements in well performance and production efficiency, as well as the increasing contribution of associated gas from oil wells in major onshore basins (Permian, Bakken, and Eagle Ford) which has played a crucial role in maintaining overall production levels, particularly given recent strength in oil prices.

The coming wave of U.S. Gulf Coast LNG export facilities scheduled for start up from late 2024 is set to structurally increase LNG feed gas requirements, and place even greater importance on U.S. ability to improve or maintain domestic gas production levels. With the growing influence of Henry Hub in global gas markets (both as a contractual index, and as a key floor for global prices given cargo cancellation flexibility), increasing attention will need to be paid by market participants to U.S. domestic production trends.

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