Although prices for energy commodities tend to go up in winter as demand rises, that wasn’t at all the case for gas prices. Natural-gas futures fell to a new four year low, dipping below $2 per million British thermal units (MMBtu) as a chronic oversupply problem continues to hound producers.
The main culprit is the ongoing shale boom in the Texan Permian Basin, which has led to an overabundance of not just oil, but natural gas as well. Although many industry experts have called for supply cuts, whether from energy companies or even from the government, current estimates seem to suggest that production will continue to rise. The U.S. Energy Information Administration now predicts that natural-gas output will rise by an extra 2.9% in 2020.
The current winter in much of the U.S. is already milder than would otherwise be normal for this time of year. This has led many experts to worry that the U.S. could move into the spring and summer months with an above-average stockpile of unused gas, which could further push down gas prices.
“We’re basically running out of winter with weather forecasts so far not picking up any signs of a dramatic change in February,” said Ole Hansen from Saxo Bank, according to the Financial Times. “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.”
While national gas prices have been falling, local gas prices in specific areas of the country have fallen so low that they were into the negative. Specifically in areas surrounding the Permian Basin, companies and distribution companies in some areas were actually paying people to take the natural gas off their hands. While it was only a temporary situation, it goes on to underscore just how severe the gas glut is in the U.S.
As for the producers themselves, it’s almost impossible to just break even with prices as low as they are. As of Tuesday, futures fell by a whopping 5.4% to just $1.895 per MMBtu. Even long-term futures contracts have seen their prices fall substantially, with prices for gas contracts with delivery dates of January 2030 falling to below $3 per MMBtu.
In light of this, shares of natural-gas producers have taken major hits to their market caps. The biggest producer in the country, EQT Corp (NYSE: EQT), has lost almost two-thirds of its market value in the past 12 months as gas prices continue to plummet. Smaller producers, such as Gulfport Energy and Antero Resources, have lost closer to 80% of their value in the past year. At this point, it’s hard to see how they companies will stage a comeback.
EQT Company Profile
EQT Corp is a natural gas producer that operates through its subsidiaries: EQT Production and EQT Midstream. Operating out of the Appalachian Basin, EQT Production produces natural gas by using lateral horizontal and completion drilling technologies. By using longer laterals and multiwell pads, the company is able to develop acreage in an economically profitable manner. – Warrior Trading News
