We find ourselves once again in the 2nd quarter- a time that sees pipelines loaded with an overabundance of natural gas. To minimize the losses associated with pipeline closures, the 2nd quarter is often chosen by operators to carry out annual pipeline maintenance, due to the low prices and demand associated with a natural gas surplus.
The 2nd quarter also sees a vast uptick in the circulation of Operational Flow Orders (OFOs). OFOs are orders or warnings issued by pipeline operators to shippers, advising them to adjust natural gas supplies to protect the integrity of the pipelines themselves. In the last weekend, several pipelines in the Northeast issued OFOs owing to an oversupply of natural gas.
It is possible for OFOs to be issued as a result of an undersupply of gas within the pipelines, but this is more commonly experienced during peak high winter demand, the opposite of the weak spring demand experienced in the 2nd Quarter. This weekend saw delivery prices at Dominion go as low as $1.30 per MMBtu, approximately $0.40 per MMBtu off levels traditionally associated with shut-in pricing.
The OFOs announced this weekend have now been lifted as demand from commercial and power sectors returned to the natural gas market, following the expected weekend trough. Oversupply OFOs can be expected in April through June as demand continues to decrease. Demand will likely bottom out sometime between late May and mid-June.
Seasonal Frac Crews
As of now, frac crew numbers are in decline- something to be expected during the 2nd quarter when considering the aforementioned troughs in both natural gas demand and price. Levels of seasonal decline can be seen below. Real-time frac crew count data is supplied by Hyperion.
The last two of three years have seen frac crew numbers decreasing during the 2nd quarter. 2022 falls as an outlier as a result of inflated prices experienced during the bull market that was the 2nd Quarter of 2022.
The Northeast tends to see a seasonal decline throughout the 2nd quarter, as demand sinks lower in this area than the rest of the Lower 48 US. The Northeast also sees more OFOs posted during the 2nd quarter than any other area.
From the outset, the 2nd quarter has seen Oklahoma and North Dakota bear the largest decline in frac crew counts. The Northeast has witnessed a smaller decline, while other regions have been unchanged or even up slightly since the quarter’s beginning.
Coinciding with seasonal demand lows, the 2nd quarter sees oversupply OFO issuance reach its highest annual levels, especially in the Northeast. A knock-on effect of reduced demand and low prices experienced during the period sees frac crew counts declining throughout.