U.S. natural gas futures soared by about 10% on Wednesday after Chesapeake Energy - soon to be the biggest U.S. gas producer after its merger with Southwestern Energy - cut the amount of gas it plans to produce in 2024 due to the recent plunge in gas prices to a 3-1/2-year low.

Chesapeake was just the latest gas producer to slash spending and reduce rigs after gas prices dropped about 31% so far in 2024 after falling 44% in 2023.

Last week, gas producers Antero Resources, Comstock Resources and EQT said they also planned to reduce drilling this year.

US natgas prices slide 2pc to 3-1/2-year low

Chesapeake on Wednesday lowered it 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.

Still, analysts said gas output could actually 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.

Gas prices fell so far this year because a mild winter kept heating demand low, allowing stockpiles to remain 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.

Analysts forecast U.S. gas stockpiles at around 22% above-normal levels for this time of year.

Front-month gas futures for March delivery on the New York Mercantile Exchange rose 15 cents, or 9.5%, to $1.726 per million British thermal units at 8:40 a.m. EST 1340 GMT), putting the contract on track for its highest close since Feb. 12.

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

Wednesday’s rise pushed the front-month out of technically oversold territory for the first time in 11 days and would be the biggest one-day percentage gain since April 2023 when prices jumped 11.2%.