Frigid Temperatures Cause 5 Bcf/d of Freeze-offs

Widespread cold throughout most of the central U.S. has caused freeze-offs at the wellhead. The sharp drop in production totaled over 5 Bcf/d as of February 12 versus the previous Sunday (Feb. 7).

Production freeze-offs occur when temperatures drop below freezing in producing fields. Complications arise, including freezing casing water and other liquids in above-ground gathering lines, blocking the flow of natural gas. Typically, states with warmer average temperatures are more susceptible to freeze-offs because producers there have less incentive to prepare for them, according to Argus. This is what makes the current cold so potent to production as many of the affected areas are in Oklahoma, Texas, and New Mexico, rather than the Northeast.

Natural gas production in Oklahoma's Cana-Woodford experienced the largest drop in output of just over 1.2 Bcf/d, according to PointLogic. That's a 32% drop from about 3.9 Bcf/d for the Cana-Woodford (SCOOP/STACK, Granite Wash). The chart below shows production declines for the past five days to Feb. 12 and most of the drops can be attributed to freeze-offs.Source: Wunderground.comThe sharp drop in production due to freeze-offs combined with much higher demand has already set spot market price records for certain Midcontinent gas locations. Enable Gas East, a mostly eastern-Oklahoma price, averaged $34.38/MMBtu on Thursday trading for Friday's gas deliveries, with a $18-$55 trading range, according to Platts data. Oneok was the big eye-popper after trading at an average of $76.03/MMBtu with a range of $27.50-$100 on Thursday. On Friday, these locations were heard trading upwards of $500/MMBtu for physical gas delivered over the weekend and through Tuesday - the coldest forecasted days.

The wild price action has been confined to cash markets as the forwards for most basis and Nymex are mostly unaffected by the near-term cold snap. The acuteness of the cold and resulting freeze-offs are what have allowed record cash market prices.

Below is a snapshot of spot market gas as assessed by Bloomberg on Friday afternoon. Try not to salivate.