Bigger base rebates hit Eastern Gas South as Appalachian production increases

Strong points

June, July, August drops to $1 off at Henry Hub

Appalachian production hits 3-month high in April

Number of rigs, drilling new wells, completions up

Peak summer basis prices at the benchmark Appalachian hub, Eastern Gas South, fell to their lowest level in eight weeks in recent trading, as gas production in the region shows signs of momentum at the rise.

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Calendar month prices for June, July and August 2022 are now trading at around $1/MMBtu discount to the Henry Hub, which is the widest spread since late February, when a series of freezes of production fueled a sharp rise in benchmark gas prices in the United States. , show data from S&P Global Commodity Insights.

After rebounding alongside Henry Hub in early spring, prices at Eastern Gas South have recently appeared to drift away from the US benchmark as Henry Hub summer prices hit all-time highs at over $8/ MMBtu.


Since mid-April, peak summer band Eastern Gas South has widened its rebate at Henry Hub by around 25 cents, or about 30%, as traders began to doubt the sustainability of gas prices from 6 to $7/MMBtu in Appalachia this summer.

The widening of the futures price differential between Eastern Gas and Henry Hub also comes as gas production in the Appalachian Basin shows modest but steady signs of growth. In April, production in the Marcellus and Utica shales increased slightly to an average of 33.2 billion cubic feet per day, its highest level since January, according to data from S&P Global.

Based on recent upstream activity, one would expect production to continue to grow this summer.

Drilling, completions

In March, operators in the Appalachian Basin drilled about 89 new wells, reaching a pandemic-era high not seen since April 2020, according to data from the US Energy Information Administration.

While well completions in March were unchanged at 95, monthly numbers appear to have stabilized recently at near pre-pandemic levels, according to data from the Drilling Productivity Report.


In the week ended April 20, rig counts in the Marcellus and Utica shales hit 53 and are just two rigs away from a 30-month high recorded in March, according to data published by Enverus.

Recent upstream investments could be a bullish indicator for Appalachian gas production this summer — a topic that is expected to be addressed by producers in the region in upcoming first-quarter earnings calls.

According to an updated forecast released by S&P Global, combined production from Marcellus and Utica could exceed 34 Bcf/d by the end of the summer and potentially reach 34.5 Bcf/d by the end of 2022.

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