In Graphs: The Coming Shock to Natural Gas Prices

May 22, 2022

Above, US fossil gas price this weekend is at 8 USD per MMBtu.
Below, Europe’s price is 32.

US Energy Information Agency, one week before Ukraine invasion:

We estimate that the wholesale spot price of natural gas at the U.S. benchmark Henry Hub will average $3.92 per million British thermal units (MMBtu) in 2022, an eight-year high, and will average $3.60/MMBtu throughout 2023. We expect these elevated prices will drive continued increases in U.S. drilling activity and natural gas production.

Free markets being what they are, a lot of US gas is being attracted to Europe. The US is now neck and neck with Qatar as the leading exporter of Liquified Natural Gas, being limited only by the capacity of LNG processing and port facilities.

Qatar regained leadership in May, by a nose.

Wall Street Journal:

Natural-gas drilling has rarely been so profitable. Yet U.S. producers say they will retire debt, buy back shares and pay dividends rather than ramp-up output.  

The pursuit of stock-boosting financial maneuvers has helped shares of Antero Resources CorpAR 0.31% , EQT Corp. and others shine in a down market. It also adds to concerns about low supplies and suggests higher prices ahead for the heating and power-generation fuel, which has already contributed to the sharpest inflation in four decades.

Natural-gas prices have more than doubled so far in 2022, rising at a time of year when they normally decline into mild spring weather. Futures for June delivery rose 5.8% on Wednesday to end at $8.415 per British thermal units, the highest price since frackers flooded the market with shale gas more than a decade ago.

Coterra Energy IncCTRA 0.89% shares have added 13% since the producer said Tuesday that it won’t add to its drilling plans this year despite higher prices. Instead, it is spending half of its first-quarter cash flow buying back stock and paying a dividend that is about 7% higher than for the previous quarter. The stock is up 72% this year, the second best performer in the S&P 500 index.

Diamondback Energy Inc. and Devon Energy Corp. also said Tuesday that they were sticking to drilling budgets written when prices were much lower and steering cash to shareholders. Their shares have jumped 12 and 16%, respectively.

“Our investors have been clear: They want us to be disciplined in both high and low commodity price environments and be proactive in returning cash to our shareholders,” Coterra Chief Executive Thomas Jordan said.

Rising natural-gas prices are pushing up utility bills, threaten to make air conditioning very expensive this summer and are eating into manufacturing profits. “Natural gas is used to power many of our plants, and, importantly, many of our suppliers’ plants, which puts pressure on their costs and timing,” Colgate-Palmolive Co. finance chief Stanley Sutula III told investors last week.

A chilly April limited how much surplus gas production has been pumped into caverns this spring by traders storing it for when seasonal demand rises. Meanwhile, war in Europe promises to keep liquefied-natural-gas export terminals operating at full capacity to supply U.S. allies replacing fuel from Russia.

U.S. gas inventories this spring have been about 17% below the five-year averagefor this time of year and analysts say that production will have to increase sharply to ensure there is ample supply to keep prices from soaring this winter. 

Winter is coming.
Can renewable energy developers profit from the coming crunch? I’ll have to cover that in another post.

One Response to “In Graphs: The Coming Shock to Natural Gas Prices”

  1. rhymeswithgoalie Says:

    Natural-gas drilling has rarely been so profitable. Yet U.S. producers say they will retire debt, buy back shares and pay dividends rather than ramp-up output.

    For the record, drilling isn’t profitable, it’s a cost that might eventually result in profitable supplies of gas if the market price is high enough. Selling existing production at high prices is profitable now.

    Fossil fuel companies dismissing or delaying capital investment for new extraction is a good thing. Painful to many, but good overall.


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