US natural gas prices drop to lowest level in 4 years

Supply expected to keep growing in 2020 while demand has been subdued

David Sheppard, Energy Editor  ft.com    1/20/2020

US natural gas prices fell to the lowest level in four years on Monday, plunging below $2 per million British thermal units as ample supplies and warmer-than-expected weather weigh on the market.

Benchmark prices for US natural gas have more than halved since late 2018, posing a challenge to producers of the fuel in the shale fields of Texas and Pennsylvania. But traders remain bearish on the outlook despite forecasts that output could eventually start to fall. Drillers have conserved cash rather than pursue ever-higher production after the market slumped.

Last week, the US Energy Information Administration forecast that supplies of domestically produced natural gas would not start to fall until 2021. It said output should rise 3 per cent this year to a new record of 94.7bn cubic feet per day.

Traders said the slide below $2 per mmbtu to a low of $1.83 on Monday came as much of the US experienced unseasonably mild temperatures, reducing demand for natural gas that is widely used in heating as well as electricity generation.

It is not just a problem in the US. Warmer temperatures in parts of Europe and Asia have also cut demand for natural gas, which feeds back into the US price given its growing role as a major exporter of liquefied natural gas. “Warm weather has sapped global heating demand,” said analysts at Energy Aspects, a consultancy.

Ole Hansen at Saxo Bank said concerns were growing that with the mild winter looking set to continue, the US could head into the spring and summer with inventory levels well above average. That is before the traditional build-up in storage over the warmer months.

“We’re basically running out of winter with weather forecasts so far not picking up any signs of a dramatic change in February,” Mr Hansen said. “We need to see a response from producers willing to reduce production before this market bottoms out, as at the moment there is just too much supply. But that may not happen quickly.”

Hedge funds, encouraged by the supply glut, have taken to betting increasingly aggressively against the price. In the past week they upped their net short positions — the difference between bets on falling and rising prices — to almost 267,000 futures and options contracts. That is the largest short position on record based on data going back to 2013.

Last year, hedge funds’ bet against the US natural gas market peaked in the summer at less than 240,000 contracts.

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But only for so long!  :-)

Oh yeah, that's a given-but you are right

I fear we are in for low natural gas prices for the next four or five years.  I hope I'm wrong but it is beginning to look doubtful that LNG export will be the savior we hoped for.  No matter how much the demand increases, the supply exceeds it.

I remember an old benchmark... I had a deal sold to Samedan & I was supposed to meet their E. Texas geologist @ the Albuquerque airport to get the deal done.  In Houston, I bought a paper to read on the plane.  Front page - 'Natural Gas Hits 92 Cents".  It's easy to remember, because it was 1992.  Lets just call it 28 years ago.  Gee - now we get DOUBLE for gas... while rents, salaries, vehicles, benefits, contractor fees, legal fees, drilling rig rates, costs of pipelines & locations, costs of getting rid of salt water - - - - have done - what - in 28 years??  

What if the market would only bear a doubling of price on a pickup, a house, food, medical, medical insurance, electricity & on & on since 1992.  Nobody would be selling these things, because the economics just don't work. Of course, TVs and the like are much better & remarkably cheap.  So are other consumables and 'gotta-have-now-junk', thanks to the labor of genuine Chinese slaves.  But - but - at what REAL cost, as measured by our huge trade deficits & spiraling debt?

I also would be interested in knowing how many Haynesville wells have already been drilled & are waiting on completion.  Those wells probably would never have been drilled if the crystal ball told the truth as to how much gas brings & will bring for at least a couple of years.

I wonder what those 1992 wells cost to drill and complete?  I'd say its a given that they were vertical wells producing from conventional reservoirs.  The current average Haynesville well now costs between $7.5M and $8.5M, if everything goes right.  More than a few wells are in the $9M to $10M range especially on the deeper end of the play area.

The state currently lists 3357 "active" Haynesville Shale wells.  The monthly report that listed DUCs has been discontinued.

The Waha hub was at $0.63 earlier today.  https://texasalliance.org/daily-market-information/

Until Waha is at near parity with Henry Hub, there will be more room to fall.  

Ouch!

Denver — In a first ever, Permian forward gas prices settled in negative territory this week as the 2020 market outlook for pipeline capacity exiting the West Texas basin continues to deteriorate.

On Tuesday, the April calendar-month contract was assessed at minus 2 cents/MMBtu. Forwards prices for May appeared to be headed in the same direction, ending the day at just 6 cents/MMBtu.

As the gas market continues to sour on the Permian, the balance 2020 forward curve at Waha has lost more than half its value in the past month, settling at just 40 cents on Tuesday.

In the cash market, the steady rise in Texas LNG feedgas consumption has helped to buoy prices this winter, along with more recent gains in seasonal heating and power burn demand.

Month to date, spot gas prices at Waha have averaged 67 cents/MMBtu, S&P Global Platts data shows.

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