What's it going to take for natural gas prices to rebound?* Update

The answer: A production cut of about 2 billion cubic feet per day, says Rusty Braziel of Bentek Energy. But don’t hold your breath on that happening, or demand ratcheting up from the other direction.

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To recap: natural gas prices are near 7-year lows due to a big drop-off in demand thanks to the economic slowdown, and the surge of production that followed success in the many shale plays throughout the country. The completion of a number of natural gas pipeline projects in recent years also helped.
But production is still up over last year, by about 2.7 Bcf, says Braziel. This is because at the well-head producers are still able to make money on natural gas below $4 per million British thermal units, at least for producers east of the Sabine River (to use a rough geographic rule of thumb).
And there’s little mystery as to where these natural gas resources are, Braziel says, since companies have been drilling through them for decades to get at conventional oil and gas formations.
“You may as well drop the ‘E’ from E&P,” Braziel said, because the companies don’t need to explore, just produce.
The excess production is quickly filling up natural gas storage sites (and more sites are being planned), which may drive us to full capacity (about 4 tcf) in the coming weeks. This all serves to keep downward pressure on prices as new production has to compete for business with gas coming out of storage.
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Update:
Platt’s said its survey of analysts predicts tomorrow’s storage data will report injections smaller than both last year’s 82-Bcf build and the five-year-average injection of 56 Bcf, due to factors such as hot weather in the Northeast. But the heat won’t last too long, so the bite into the record oversupply won’t be huge.
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So, Bentek’s price predictions: below $3.50 at least through October. The company will keep making monthly price predictions through a new “Market Call” report, and will grade itself on its prior month predictions.

No Comments yet

  1. poolrock

    Perhaps it’s not broken in anyone’s mind but the oil and gas industry!!!

    #1
  2. Brian

    If Natural Gas prices are at an all time low, why haven’t gas and electric prices come down? There are a bevy of products derived from natural gas that should also have begun a downward price trend. I smell a skunk!

    #2
  3. ST

    Domestic energy production is the hot topic, but this gap between demand and supply is a big issue. We need solutions that make energy supply more elastic and responsive to demand. These constant swings in energy prices have always plagued the industry and our economy. Until we find better ways to manage our energy, our fate remains in the hands of commodities brokers. We all saw how well that worked last year.

    #3
  4. Jeff

    I like that it is falling since my electric bill is directly linked to the price of natural gas. Last month my electric ran about 9 cents/kW and hopefully next month it will be even lower.

    #4
  5. Bill Duff

    You must be mistaken. I clearly remember the mainstream media ridiculing the phrase. “Drill Here, Drill Now, Pay Less. They said that drilling would not solve the energy problem or that it would take years. They said Sarah Palin and Newt Gingrich were nuts. Yet here we have a natural gas glut. That was fast. Natural gas is the cleanest, greenest hydrocarbon on earth. Now it is plentiful and cheap. Let’s have a party to celebrate, the impossible. US Domestic Natural Gas Reserves are at their highest level in history.

    #5
  6. In response to Brian’s post, according to the analyst firm Tudor Pickering, the average US price of electricity has dropped about 55% due the drop in price of both natural gas and coal. Some electric utilities have not dropped their rates because they forward purchased their gas and coal supplies last year when prices were higher. Those forward purchases are running out, so rates for those utilities should now be dropping. Also, some consumers did not benefit because they signed-up for pricing programs last year which guaranteed flat rates for some period of time. Unfortunately, they choose to do so at the peak of the gas market. Finally, if you just compare your June and July bills to last year without looking at the rate charged, you will not take into account the fact that it was MUCH hotter in Houston this year.

    #6
  7. Domestic energy production is the hot topic, but this gap between demand and supply is a big issue. We need solutions that make energy supply more elastic and responsive to demand. These constant swings in energy prices have always plagued the industry and our economy. Until we find better ways to manage our energy, our fate remains in the hands of commodities brokers. We all saw how well that worked last year.
    ———
    Buy solar panels.

    #7
  8. opie

    How about a gas well blowout that lasts three or four days or so?

    #8
  9. BigOil

    Gas & Electric prices may not have come down because those providers may have bought the gas at a fixed 12 month contract or some other type of arrangement. If they are not buying on the spot market or the next month contract; then what you read is apples and oranges. There’s a lot more to how the consumer rate is determined.

    #9
  10. Atif

    Utilities sign multi year contracts with gas producers and most contracts signed were at a price of around 6 and these may last for may be another year. So once these contracts expire they can sign new contracts for the current gas price around 3.5

    #10
  11. That Guy

    When my electricity bill, or better yet my natural gas bill, hits a seven-year low, then I’ll sympathize.

    #11
  12. I know my freaking royalty checks are at an all-time low.

    #12