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UPDATE 2-US natgas prices soar 13% from 3-1/2-year low as Chesapeake cuts output

(Adds latest prices, analysts quote, details)

By Scott DiSavino

Feb 21 (Reuters) - U.S. natural gas futures soared by about 13% on Wednesday after Chesapeake Energy - soon to be the biggest U.S. gas producer after its merger with Southwestern Energy - cut the amount of fuel it plans to produce in 2024 by roughly 30% due to the recent plunge in prices to a 3-1/2-year low.

Chesapeake, which said the gas market is "clearly oversupplied," was just the latest U.S. gas producer to slash spending and reduce rigs after prices dropped about 30% so far in 2024 after falling 44% in 2023.

Last week, U.S. energy firms Antero Resources and Comstock Resources said they planned to reduce drilling this year, while EQT, currently the nation's biggest gas producer, reduced its 2024 production guidance range.

Front-month gas futures rose 19.7 cents, or 12.5%, to settle at $1.773 per million British thermal units. That was the biggest one-day percentage gain since July 2022, when prices jumped by 14.3%.

On an inflation-adjusted basis, U.S. gas prices have already collapsed to their lowest in over 30 years.

On Tuesday, the non-inflation adjusted front-month contract closed at its lowest since June 2020, which was the height of COVID-19 demand destruction.

Providing ammunition for Wednesday's price spike, analysts at energy consulting firm EBW Analytics Group said was "an enormous speculator short position near four-year highs."

Chesapeake lowered its prior capital expenditure guidance by about 20% through rig count reductions and deferring well completions, which should cut gas production to around 2.7 billion cubic feet per day (bcfd) in 2024, down from around 3.5 bcfd in 2023.

One billion cubic feet is enough gas to supply about five million U.S. homes for a day.

"We’re fans of the move as (Chesapeake) slashes production well below consensus expectations while preserving volumes for a healthier demand market in 2025+," said Matt Portillo, head of research for Perella Weinberg Partners' TPH&Co.

Portillo was referring to a widely held belief in the market that U.S. gas demand will surge higher in 2025 and beyond as several liquefied natural gas (LNG) export plants currently under construction enter service.

U.S. LNG export capacity is expected to almost double over the next four years from about 13.8 bcfd now, representing about 15% of U.S. domestic gas demand, to around 24.4 bcfd in 2028. Analysts said projected LNG demand growth was the primary reason many producers have - until now - kept gas output near record levels despite low prices.

Gas prices fell so far this year because a mild winter kept heating demand low, leaving stockpiles at well above normal levels, while output remained near record levels despite an Arctic freeze in January that briefly cut output and caused gas demand to soar to a record high.

Even with less gas drilling, analysts said gas output could still increase in 2024 because crude prices were high enough to encourage oil producers to drill in shale basins like the Permian in Texas and New Mexico and the Bakken in North Dakota, where oil wells produce a lot of associated gas. (Reporting by Scott DiSavino; Editing by Andrea Ricci, Franklin Paul and Jonathan Oatis)

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