As we start the new year, we've given some thought to current trends in the world of oil and gas, and how they will affect you, the mineral owner. We don't have a crystal ball, but we'll do our best to highlight a few trends to watch in 2024.
Overall, 2023 was a good year for oil and really bad year for natural gas.
West Texas Intermediate (WTI) crude averaged $77/bbl in 2023. As of this morning, January 25, 2024, WTI is trading at $76/bbl. While 2023 pricing was a far cry from 2022 (where we averaged $95/bbl), 2023 was still a pretty solid year for crude.
Henry Hub, the US benchmark for natural gas averaged $2.54 in 2023, and as of this morning, is trading at 2.18/mmbtu. In 2023, prices for natural gas cratered by 60% compared to 2022! 2023 was the 3rd worst year for natural gas over the past 20 years.
The US set an all-time crude oil production record in 2023 of 13.3 million barrels per day. At the same time, we also saw the US rig count drop 20% in response to lower pricing as companies reduced activity.
Here's our first observation for 2024:
The rig count is going to catch up with production and we will likely start to see crude and natural gas production fall in 2024.
Production always lags rig count. And the rig count is telling us that production will begin to fall in 2024. Now, this can be both positive and negative for mineral owners. The reduced rig count means that drilling activity is going to be slower in 2024, but the reduction in activity will also be supportive of prices, which means that you could benefit from higher pricing on producing wells.
2024 is also an election year, which means that we will see increased volatility in markets generally, and specifically in the oil and gas market. There's been recent discussion around permitting of US liquified natural gas (LNG) export facilities, which are projected to increase demand for US natural gas globally and boost prices domestically.
The Biden administration recently announced that it is deferring approval of Venture Global's Calcasieu Pass LNG facility in Louisiana. While the delay in permitting of new facilities won't impact previously approved facilities, it is concerning to see LNG become a political target.
Here's our second observation for 2024:
If US LNG becomes politicized, it could have a negative impact on pricing for natural gas.
While low natural gas prices are good for the US consumer, they are bad for producers and mineral owners. Hopefully, the recent rhetoric is just the Biden administration pandering to its base prior to the upcoming election, but only time will tell...
Until next time…
Steven Hatcher