Natural-Gas Prices Are Flying. So Are Producers’ Stocks
By Avi Salzman Oct. 12, 2020 barrons.com
Natural gas closed at $2.88 per million British thermal units on Monday, up 5.1% on the day and at a new 52-week high. It rose as high as $2.95 during the day, coming just short of a two-year high. Stocks of gas producers were rising sharply too: EQT (ticker: EQT) was up 5% and Cabot Oil & Gas gained 3%.
The rally has been building for a while. Before Monday, natural gas rose for three weeks in a row, gaining 34% over that span. It was the largest three-week jump for the commodity since November 2018.
The gains come as oil has remained in a holding pattern, vacillating between the high $30 range per barrel and the mid $40s for the past three months. Brent crude futures fell 2.6% to $41.72 on Monday as investors responded to signs that supply is outpacing demand.
Production has come back online in several areas. Libya is restarting production at its largest oil field, a strike in Norway is over, and U.S. production resumed in the Gulf of Mexico after hurricane-related shutdowns.
“All said and done, around 2 million barrels of crude oil came back online, or are scheduled to come back online in coming days,” wrote Robert Yawger, director of energy futures at Mizuho Securities USA.
But the picture is different for natural gas. Gas prices have been subdued for years because there is a glut of the fuel, but the dynamics are changing.
Shale-oil production tends to produce natural gas too, so the boom in oil drilling in the U.S. has also led to more output. Covid-19, however, has slashed demand for products refined from crude, such as gasoline and jet fuel, so oil producers have sharply reduced their activity.
The result has been an overall decline in U.S. gas production.
“Several strands are converging,” wrote Andrew Weissman, who follows gas trends at EBW Analytics Group. “Production is faltering. Space heating demand, while still modest, is expected to surge starting Friday—and then remain strong for the rest of the month.”
As winter approaches, natural gas tends to trade based on whether it’s expected to be particularly cold, forcing people to use more gas for heating. It also trades based on how much gas is being used for electricity. Utilities have switched to gas from coal, which has provided another tailwind to gas prices.
On top of that, Hurricane Delta was not quite as bad as feared. Shipping terminals used to transport liquefied natural gas will be up and running faster than expected. That will allow exports to restart faster than the market had anticipated
this article isn't a six month late April-2020-Fool's-Day joke, is it?
Seriously, great news.
IMO, it is positive news. I expect natural gas prices to remain in a relatively narrow range around $3/mcf next year but think our optimism should be tempered by the realization that new associated gas take away out of the Permian will serve to cap hub prices in the Gulf Coast region. To overcome that new supply coming to market, we need exports to increase. LNG exports and pipeline volumes to Mexico need to soak up much of that new volume so that it doesn't serve to depress Haynesville gas prices.
RBN Energy excerpt. Link to full article below.
With the rise of U.S. LNG exports in recent years, southern Louisiana has become a focal point for natural gas demand, pulling in gas supply from near and far and all directions. That market was severely disrupted this summer as COVID-19 decimated global LNG demand and hammered the economics of U.S. LNG exports. Pipeline flows into southern Louisiana during those months went from record-breaking highs that pushed the limits of the area's infrastructure capacity to levels consistent with 2018, when the Bayou State's LNG export capacity was just 2.65 Bcf/d, compared with 4.9 Bcf/d now. More recently, an active hurricane season has also curtailed exports. But demand for U.S. LNG is rebounding, and as LNG feedgas heads back to its previous highs and beyond, a new flow dynamic is emerging along the Gulf Coast, driven by the 1.35 Bcf/d of new export capacity in Texas that came online this year. Flows between Louisiana and Texas are reversing as an increasing amount of gas is needed on the western side of the Sabine River to feed the Corpus Christi and Freeport LNG facilities. The incremental gas demand and flow reversal will create new challenges and constraints for the region's pipeline infrastructure as steady exports resume. Flows into Louisiana will be higher than ever, but so will flows out of Louisiana heading west to serve additional LNG demand. In today's blog "
There is so much useful information in this forum. Thank you for posting.
You're welcome, Renee. GHS for twelve and a half years a pioneer in land/mineral owner focused information and advice. Thank you Keith and Anna.