A Natural-Gas Glut Is Forcing Drillers to Dial Back—Again Oversupply of the power-plant fuel persists despite some of the hottest weather on record
Wall Street Journal
By Ryan Dezember
Updated Aug. 20, 2024 3:13 pm ET
A glut of natural gas is depressing prices and prompting fresh cutbacks in America’s drilling fields, despite one of the hottest summers on record.
Big producers such as EQT and Coterra Energy are choking back output, waiting to connect new wells to pipelines and delaying drilling projects. They aim to buoy prices that have rarely been lower during the heat of the summer, when air conditioning creates a lot of power demand.
Benchmark natural-gas futures ended Tuesday at $2.198 per million British thermal units, down 14% from a year ago and 30% less than the recent peak in mid-June.
Futures were even lower at the beginning of this month, trading below $2, before producers began disclosing plans to dial down output. Aside from the crash during 2020’s Covid-19 lockdown, summer natural-gas prices hadn’t been so low since the 1990s.
“Simply put, gas markets are oversupplied,” Coterra Chief Executive Thomas Jorden told investors this month, when the Houston company mapped out plans to reduce production in its Appalachian gas fields.
U.S. gas output hit a daily record of 105 billion cubic feet in December, according to S&P Global Commodity Insights. An unusually warm winter left a lot of gas unburned during heating season. By spring, the market was swamped and prices tumbled. A round of production curtailments lifted prices but they were driven back down by resurgent output.
Meanwhile, storms have hit demand hard. Hurricane Beryl knocked out power for millions of Texans and big gas consumers on the Gulf Coast, including a terminal that exports liquefied natural gas, or LNG. This month tornadoes blacked out hundreds of thousands of homes and businesses around Cleveland.
The volume of natural gas in domestic storage facilities is 13% higher than the five-year average for this time of year despite record demand this summer from utilities, according to the Energy Information Administration.
That is down from a 40% surplus in March, when gas prices hit inflation-adjusted record lows. But there is still enough gas stockpiled to warm the U.S. through even an unusually cold winter and leave a comfortable cushion for spring, said Joe DeLaura, global energy strategist at Rabobank, which recently trimmed its winter price forecasts.
There are more than two months to go before furnaces are fired up and gas demand exceeds daily production. Until then, production in excess of demand is injected into underground storage caverns by traders eyeing higher winter prices. The more gas that winds up in storage ahead of winter, the lower the prices consumers are likely to pay when it comes time to heat their homes.
“Everything from today until the end of October is like extra padding,” DeLaura said. “It’s pretty hard to make a bullish case.”
Producers lately have been acting more like traders than in past years, when they drilled to boost production, often without regard to profitability. For the second time this year producers including EQT, APA and Chesapeake Energy are holding back gas from the market while prices are low.
So far this month analysts say production has declined by more than two billion cubic feet a day, which is about equal to the daily consumption of a small city or the largest LNG-export terminals.
That is partly due to the curtailments, which quickly remove supply from the market, as well as the delayed effect of less drilling since spring. There were 98 rigs drilling in the U.S. specifically for natural gas last week, down from more than 120 in February, according to oil-field services firm Baker Hughes.
Gas executives and analysts say it takes six to nine months for reduced drilling to show up in production data.
“We’re seeing markets function efficiently and producers responding the way you would expect them to respond,” said Eric McGuire, director of natural gas and LNG analytics at energy research firm Wood Mackenzie. “The thing that is shocking is that they haven’t really done this before; it’s a new producer paradigm.”
OP Note: the corporate entities that the Trump/vance team is rooting for, failed to pass the lower prices to consumers. In fact the MAGA are screaming 'high energy prices.'
By Ryan Dezember
Updated Aug. 20, 2024 3:13 pm ET
A glut of natural gas is depressing prices and prompting fresh cutbacks in America’s drilling fields, despite one of the hottest summers on record.
Big producers such as EQT and Coterra Energy are choking back output, waiting to connect new wells to pipelines and delaying drilling projects. They aim to buoy prices that have rarely been lower during the heat of the summer, when air conditioning creates a lot of power demand.
Benchmark natural-gas futures ended Tuesday at $2.198 per million British thermal units, down 14% from a year ago and 30% less than the recent peak in mid-June.
Futures were even lower at the beginning of this month, trading below $2, before producers began disclosing plans to dial down output. Aside from the crash during 2020’s Covid-19 lockdown, summer natural-gas prices hadn’t been so low since the 1990s.
“Simply put, gas markets are oversupplied,” Coterra Chief Executive Thomas Jorden told investors this month, when the Houston company mapped out plans to reduce production in its Appalachian gas fields.
U.S. gas output hit a daily record of 105 billion cubic feet in December, according to S&P Global Commodity Insights. An unusually warm winter left a lot of gas unburned during heating season. By spring, the market was swamped and prices tumbled. A round of production curtailments lifted prices but they were driven back down by resurgent output.
Meanwhile, storms have hit demand hard. Hurricane Beryl knocked out power for millions of Texans and big gas consumers on the Gulf Coast, including a terminal that exports liquefied natural gas, or LNG. This month tornadoes blacked out hundreds of thousands of homes and businesses around Cleveland.
The volume of natural gas in domestic storage facilities is 13% higher than the five-year average for this time of year despite record demand this summer from utilities, according to the Energy Information Administration.
That is down from a 40% surplus in March, when gas prices hit inflation-adjusted record lows. But there is still enough gas stockpiled to warm the U.S. through even an unusually cold winter and leave a comfortable cushion for spring, said Joe DeLaura, global energy strategist at Rabobank, which recently trimmed its winter price forecasts.
There are more than two months to go before furnaces are fired up and gas demand exceeds daily production. Until then, production in excess of demand is injected into underground storage caverns by traders eyeing higher winter prices. The more gas that winds up in storage ahead of winter, the lower the prices consumers are likely to pay when it comes time to heat their homes.
“Everything from today until the end of October is like extra padding,” DeLaura said. “It’s pretty hard to make a bullish case.”
Producers lately have been acting more like traders than in past years, when they drilled to boost production, often without regard to profitability. For the second time this year producers including EQT, APA and Chesapeake Energy are holding back gas from the market while prices are low.
So far this month analysts say production has declined by more than two billion cubic feet a day, which is about equal to the daily consumption of a small city or the largest LNG-export terminals.
That is partly due to the curtailments, which quickly remove supply from the market, as well as the delayed effect of less drilling since spring. There were 98 rigs drilling in the U.S. specifically for natural gas last week, down from more than 120 in February, according to oil-field services firm Baker Hughes.
Gas executives and analysts say it takes six to nine months for reduced drilling to show up in production data.
“We’re seeing markets function efficiently and producers responding the way you would expect them to respond,” said Eric McGuire, director of natural gas and LNG analytics at energy research firm Wood Mackenzie. “The thing that is shocking is that they haven’t really done this before; it’s a new producer paradigm.”
OP Note: the corporate entities that the Trump/vance team is rooting for, failed to pass the lower prices to consumers. In fact the MAGA are screaming 'high energy prices.'
