Blizzard freezes Bakken output as US Midwest gas demand strengthens

Natural gas production in the Bakken shale of Montana, North Dakota and parts of Canada declined Dec. 19 to levels not seen in the month of December in nearly five years, with sub-zero temperatures and snow blanketing oil and gas producers in the play.

Gas production in the Bakken averaged 1.46 Bcf/d Dec. 19, the lowest level recorded since late April of this year and the lowest mark recorded in December since 2017, according to S&P Global Commodity Insights data, with another historic blizzard blowing across the Bakken shale. The US National Weather Service issued a Wind Chill Warning across most of North Dakota Dec. 19, with "dangerous to life-threatening wind chills as low as 55 [degrees Fahrenheit] below zero possible" across the western and central portions of the state.

Those conditions have proven unfriendly to upstream producers in the Bakken and the broader Williston Basin, with a decline in oil-directed drilling tamping associated gas output. Around 300,000-400,000 b/d of oil production is currently shut-in in North Dakota because of the blizzard, with no immediate end in sight to the slowdown, North Dakota Department of Mineral Resources Director Lynn Helms said in a webinar Dec. 19.

"[On] Thursday, Friday and Saturday ... crude oil trucks were not moving, pumpers weren't on the road, tanks filled up and wells were shut down," Helms said, adding that the Christmas holiday will likely slow industry's attempts to resume previous production pace. "Probably a significant amount of that production will stay offline until after [the] New Year."

North Dakota production has suffered from historic weather impacts across 2022, with a blizzard cutting oil production in the state by around 20% in April.

Midwest call

While Bakken oil and gas producers scramble to overcome the effects of hellacious winter weather, nearby demand centers in the US Midwest are placing a call on gas supplies. Overall residential-commercial demand from homes and businesses in the region has risen 26% between November and December, to 10.1 Bcf/d, with demand peaking at 14.2 Bcf/d Dec. 18—a nine-month high and more than 40% above the December five-year average, according to S&P Global data.

Strong spot gas demand in the Midwest this month has already raised cash basis prices at regional hubs and incentivized higher deliveries into the region. At the Chicago city-gates, the cash discount to Henry Hub has narrowed to a 38-cent deficit in December month to date, up from a discount of 42 cents in November and a 60-cent discount in October. Prices at the Chicago city-gates fell slightly to $6.12/MMBtu in Dec. 19 trading, according to preliminary settlement data from S&P Global, but prices at the hub still remain around $2/MMBtu above levels recorded just two weeks ago.

These strong price signals have prompted stronger pipeline flows from a few regions, as well as robust storage draws. S&P Global data shows Western Canadian imports into the US Midwest have risen to 4.1 Bcf/d so far in December, a 17% increase compared with November, while withdrawals from working underground gas storage in the region averaged 9 Bcf/d across Dec. 18-19, hitting levels not typically seen until January or February.

These recent tight fundamentals in the Midwest gas market may continue over the coming week as temperatures across the US heartland continue to plunge. Forecasts from weather data provider Custom Weather point to an average temperature of just 18 F for the week ended Dec. 23 across the US Midwest, with the region expected to see average daily temperatures between 2-4 F across the following Christmas holiday weekend.