In response to the recent collapse in oil prices, many onshore producers are seeking to significantly reduce capital expenditures (CapEx) and lay down enough rigs to remain cash-flow neutral.
Depending on the velocity of production cuts, associated-gas production could decline into next year providing upside for 2021 gas prices.
As WTI lingers in the low $20s/Bbl, many onshore producers have lowered their CapEx guidance, for 2020, by 30% to 50%. Per company announcements, many will be focusing on their most economic wells in order to maintain a breakeven level of cash flow. Associated gas production is likely to decline. The magnitude of those declines remains to be seen. However, the longer oil prices stay low, the greater the upside for natural gas.
When we initiated our bullish outlook for natural gas we saw, and continue to see, upside in 2020. Our concerns lay in 2021. In 2021, LNG demand stops growing and a significant amount of renewable generation will be online.
We currently expect demand to be unchanged in 2021. However, a lot depends on gas production. Should associated-gas production taper off as a result of production cuts, 2021 could end up less net supplied than 2020. This leaves room for additional upside for tenors in 2021.
We will speak on the above topic, and more, in next week’s webcast.