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Appalachian producers Southwestern, Cabot see stronger gas prices in 2021 from SNL Daily Gas Report Appalachian producers Southwestern, Cabot see stronger gas prices in 2021Byline: Brandon Evans Appalachian producers expected improvements in year-over-year returns in 2021 based on a sizable percentage of hedged volumes, higher natural gas prices, increased LNG demand and the completion of a pipeline expansion project in the fourth quarter. Appalachian natural gas producers are leaning on hedging to shield themselves from market volatility. Southwestern Energy Co. reported during its first-quarter earnings call on April 30 that approximately 80% of annual production is protected from the impacts of widening Appalachia differentials through transportation capacity and basis hedges. A survey by Platts Analytics found 64% of 2021 U.S. gas production is hedged at an average price of $2.73/MMBtu, and at an even higher percentage for gas-focused producers. The 10 top US gas producers hedged about 73% of expected production at an average price of $2.74/MMBtu, a minor increase in 2021 hedge volume and average price from the prior quarter. With 2021 gas hedge portfolios largely built out, only minor additions are anticipated through the rest of 2021. Gas producers will instead turn their focus to developing their 2022 hedge strategies. Antero Resources Corp., Seneca Resources Corp. and Southwestern are among those that have added the most hedges for 2022, with an estimated 50% or more of production hedged. Cabot Oil & Gas Corp. CEO Dan Dinges looked forward to the rest of 2021. "As maintenances begin, we expect a much more bullish summer and winter outlook than what we experienced last year," the CEO said on a first-quarter earnings call. "U.S. LNG exports are currently averaging over 11 Bcf/d, more than 3 Bcf/d over last year. Mexican exports are up to 7 Bcf/d or 2 Bcf/d over this time last year." Global LNG loadings remain robust, up 3.3% year on year, with a strong pricing environment incentivizing all marginal supply into the market, as exhibited by the significant growth in exports out of the U.S. and Egypt, according to S&P Global Platts Analytics. Despite higher gas demand and stronger prices, many operators continue to maintain steady drilling and completion activity rather than jumping production in response to short-term price gains. In another factor for Appalachian producers, the bulk of the Leidy South expansion project on Williams Cos. Inc.'s Transcontinental Gas Pipe Line Co. LLC system is expected to enter service late 2021 and will add a substantial amount of takeaway capacity. About 125 MMcf/d of gas transportation capacity went online in November 2020, and the remaining 457 MMcf/d should enter service by the end of this year, according to Williams. "We are disappointed about the May blowout due to the project, but it also prevents any gas from going into Leidy storage fields during May," added Jeffrey Hutton, Cabot's senior vice president of marketing. "The lower supply increases our expectations for stronger summer prices." Brandon Evans is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc. |
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