Upon publication of G&A’s 2020 Forecast Revisitation last November, dry gas production was hovering around 89 Bcf/D levels and the market felt noticeably short year-over-year heading into its highest demand season. However, since that time, production has been surprisingly buoyant, rising as high as 92 Bcf/D during the winter, not far off the levels seen in early 2020. G&A and other market participants have expected pain in the upstream sector caused by the COVID-related demand collapse to linger into 2021, but, in many ways, the sector has proven resilient and recommitted itself to a path of sustainable growth. 

One of the driving factors behind gas production’s strength has been higher-than-expected WTI crude prices, which surpassed $60 per barrel earlier this year and have maintained similar levels since. Aided by a commitment from OPEC+ to restrain output while the global economy slowly marches toward something like post-COVID normalcy, US oil inventories have been steadily drawn down and have begun to support new drilling from oil-focused basins around the country. In the meantime, even before drilling and frac crews around the country could be mobilized, producers have utilized drilled-but-uncompleted (DUC) wells to support current production and capitalize on high pricing levels for both oil and gas over the winter. Additional oil drilling brings with it a measure of associated gas and liquids production, and, although the durability of oil’s price rally remains to be seen, it must be factored into our outlook for 2021. 

Along with relatively robust production this spring, prices have pulled back considerably since extreme cold hit late in the winter season. Mild weather since that time and an earlier than normal start to the injection season have opened a window to weakness at the front of the forward curve, even as back months stay elevated due to expected bullishness in the coming winter. G&A reckons with all of these new and recurrent market drivers in this publication.