SHREVEPORT, La. -- U.S. gas producers are weathering an intense bout of good weather, Josh Viets, executive vice president and COO of Chesapeake Energy.
“Since coming to work for Chesapeake Energy, I’ve found myself becoming much, much more interested in the weather,” Viets told the audience on March 28 at the DUG GAS+ Conference and Expo. “I find myself checking the weather at least a couple of times a day and, unfortunately, this winter we have continues to be disappointing.”
A mild winter coupled with the increased production of U.S. natural gas has caused the prices for natural gas to plummet. Chesapeake has responded with a near-term strategy of adding to its production capabilities without adding to its overall production. Chesapeake Energy said in February it planned to slash drilling activity in March as natural gas markets remain oversupplied.
The strategy allows the company, set to become the largest U.S. producer of natural gas once a merger with Southwestern is approved, to position itself for a market expected to grow rapidly beginning in 2025.
“We do remain optimistic,” Viets said.
Viets said Chesapeake is counting on market growth in two primary areas: LNG and power generation.
U.S. LNG export capacity is expected to double to about 30 Bcf/d by 2027.
Chesapeake is also monitoring the growing demand for artificial intelligence (AI) data centers. AI chips use far more energy than other processors, and the cumulative effect of the rapidly growing tech sector will require a large amount of additional power drain on the U.S. electrical grid.
Viets said he’s seen estimates that the 16 Bcf/d of natural gas will be needed in the near future to generate the necessary power.
The company has therefore prepared for the future demand, while holding back on output.
For now, the company has throttled back gas production. During the fourth quarter of 2023, output averaged 3.43 Bcfe/d. Chesapeake set a target at the beginning of 2024 of between 2.65 Bcf/d and 2.75 Bcf/d.
However, Chesapeake has continued to drill wells in anticipation of a market rebound. By the end of 2024, the company will have “banked up” 80 new wells that will be ready to add natural gas to the system, Viets said.
Otherwise, gas producers should remain wary about just how much demand growth can be counted on, he said, noting that storms in the Gulf can upset operations for months. And once-dependable overseas customer markets can change their behavior dramatically.
“One of the things that we have to acknowledge is that this volatility will remain in markets,” Viets said.
Chesapeake has therefore been using the current down market to economize its operations where it can or to focus on areas that best fit with company plans.
The pending merger with Southwestern will save the company $400 million annually in cost savings from synergies, he said, and allow the company to strategically grow its assets in the Haynesville Shale. The merger also gives the company a strong diversity of assets, once combined with its play in the Marcellus Shale.
Scrutiny of large-scale mergers remains on large public companies that have engaged in M&A. At the Shreveport forum, Viets said they expected the Federal Trade Commission’s response to the merger proposal in the near future.
“We think they're incredibly compatible with one another and it gives us the capital application flexibility that we're looking for,” he said.