Natural gas Pricing
By Claire Poole | Published April 2, 2015 at 11:46 AM
Oil prices, which have become increasingly volatile amid the Iran nuclear talks, are producing most of the headlines these days. But prices for natural gas, which fuels everything from furnaces to power plants to cars, are falling as well, trading recently below $3 per thousand cubic feet equivalent, versus almost $4.50 this past fall. And down from a high of around $14 almost seven years ago. Oil and gas companies have been staggered by the combination of blows.
"The greatest challenge for the petroleum industry is figuring out how to get natural gas prices back to levels that would support more profitable E&P operations, " G. Allen Brooks, managing director at Houston investment bank Parks Paton Hoepfl Brown, wrote last week in his popular newsletter, "Musings from the Oil Patch."
The tide may be turning, however, with industry watchers seeing prospects for the clean-burning fuel starting to improve in the second half of the year. According to Global Hunter Securities Inc., natural gas that's produced from oil wells-what's known as "associated gas"-accounts for 16 billion cubic feet per day, or about 23% of overall supply. But with the big decline in the oil rig count (48% over the past four months) after drastic cuts in capital expenditures made by strained companies, there will be a lot less of that associated gas being produced, leading U.S. natural gas producers to become more bullish on pricing for the second half and beyond.
In addition, infrastructure-related production caps in the Northeast - Chesapeake Energy Corp. (CHK) is curtailing as much as 250 million cubic feet per day gross this year - coupled with big rig count drops in gassy places like the Marcellus (down 15%) and the Utica (down 38%) are expected to support prices going forward, Global Hunter said.
Those trends could benefit U.S. natural gas producers in general, particularly the Northeast players. The prime beneficiaries would include Chesapeake, Antero Resources Corp. (AR), Cabot Oil & Gas Corp. (COG), Eclipse Resources Corp. (ECR), EQT Corp. (EQT), Gulfport Energy Corp. (GPOR), Noble Energy Inc. (NBL), Rex Energy Corp. (REXX), Rice Energy Inc. (RICE), Range Resources Corp. (RRC) and Southwestern Energy Co. (SWN). Other big natural gas producers include Ultra Petroleum Corp. (UPL) and QEP Resources Inc. (QEP).