Oil prices might have staged a comeback over the past couple of months, but not every energy commodity has seen a similar trend. Natural gas prices have plummeted so far, with some of America’s largest natural gas producers giving up on their drilling plans altogether.
Prices recently have reached a three-year low, but when compared strictly to annual summer prices, natural gas has fallen to their lowest summer level in approximately 20 years.
The distinction between summer prices and those throughout the rest of the year comes from the fact that natural gas prices typically shoot up higher in the middle of the summer, as demand from electricity plants rises due to increased air conditioner usage.
This month’s heatwave across Eastern America has ended up producing record demand from power plants, but despite this, natural gas prices have continued to fall due to oversupply issues.
Natural-gas futures fell by 3.3 percent on Friday, which happens to be the lowest July prices seen since 1999. This has hit producers particularly hard, sending their stock prices tumbling.
Many of these companies operate in Appalachia, America’s top gas-producing region, and have suffered significantly thanks to falling gas prices. Companies like Range Resources (NYSE: RRC), and EQT Corp (NYSE: EQT) have all fallen over 28 percent over the past three months and will likely continue to fall going forward.
“The equity and gas markets are sending a clear message to operators to cut growth,” said Kyle Derham, a member of EQT’s executive committee, to investors on Thursday regarding the companies poor performance. “While we have started to see a pullback in activity, more is needed to balance the market.”
Even one of the most favored gas-producers in the markets, Cabot Oil & Gas (NYSE: COG), has been losing money and fell by as much as 12 percent on Friday. Despite its reputation for operating profitably when commodity prices are low, even Wall Street’s favorite gas companies are beginning to fray at the financial seams.
In response, executives have said that “we think it is absolutely wrong for Cabot to go out and…grow into this market,” instead choosing to throttle back “about as far as we can get.”
The main problem here isn’t necessarily that demand is low. In fact, exports to Mexico and international markets are at all-time highs, while demand from electricity producers moving away from coal continues to rise. Instead, the issue comes from the fact that Appalachian-based producers need to contend with oil producers in the Permian Basin, which are producing vast quantities of gas as a by-product while drilling for crude.
At one point earlier in the year, stockpiles had grown so much that existing infrastructure was unable to ship it out, creating a situation where companies were literally paying others to take their excess gas off their hands. While the absurdity of such a situation might seem humorous, the reality for gas-producers is particularly bleak.
As companies continue to ramp up production in the Permian Basin, excess gas will continue to be a problem for Appalachian-based producers. Expect prices to continue to fall in the months to come.