Natural gas production in the U.S. is expected to drop by the fastest pace ever in 2021 as drillers slash spending in response to the coronavirus pandemic that’s sending oil prices to historic lows.
Gas output is poised to fall by 4.4% to average 94.49 billion cubic feet a day next year, the U.S. Energy Information Administration said in its Short-Term Energy Outlook Tuesday. That would be the biggest annual retreat in data going back to 1998. The agency also expects production to slip this year instead of climbing to a record.
The sharp revision is a reflection of “the unprecedented effects of COVID-19 on the level of drilling activity as many producers have already announced plans to reduce capital spending and drilling levels,” the EIA said in the report.
Gas prices have already been strengthening in anticipation of production cuts. The fuel is extracted as a byproduct of oil drilling in places like the Permian Basin of Texas and New Mexico, where shale explorers are pulling back after the crash in crude prices. Gas demand is also expected to take a hit, however. Consumption is poised to drop 3.2% next year, the most since 2003, EIA said.
January gas futures have jumped 15% since March 6 as oil prices plunged on demand destruction from the virus and a price war between Saudi Arabia and Russia. Shares of gas producers have also climbed.
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