Chesapeake’s NatGas Production Cuts Never Materialized
In January 2012, Chesapeake Energy announced they would curtail (reduce) their natural gas production by 1/2 billion cubic feet (bcf) per day. In February, they announced they would double it to 1 bcf per day (see this MDN story). Other energy companies also announced they would cut production, all in an attempt to reduce supply and boost the price of natural gas. But commodities traders were wary of those announcements, saying in essence, “We’ve heard this before,” and that real cuts in production were never forthcoming (see this MDN story). Looks like the wary traders were right.
Chesapeake Energy reported that natural gas production was almost unchanged in the first quarter of this year compared to late 2011, confirming fears that pledges to cut output have so far failed to stem a flood of supply.
The No. 2 gas producer said it planned to extend the curbs throughout the year to counter a huge gas glut that pushed prices to ten-year lows. It said curtailments would total some 50 billion cubic feet (bcf) for the rest of the year after cutting output by 30 bcf in the first quarter.
Despite curbs imposed in February and March, however, the firm still produced 271 billion cubic feet (bcf) of gas in the quarter versus 272 bcf in the fourth quarter of 2011, bearing out worries that rapid growth in output from new wells would offset any reductions. Production rose from 243 bcf in the same period last year.*
*Reuters (May 1, 2012) – Chesapeake first-quarter natgas output steady, says cuts to continue
The market works. The only people who benefit if production is cut and prices rise are the people (companies/suppliers) who don’t cut production. There are lots of companies wanting to take advantage of low gas prices and lots of gas companies who are cash starved from all the capital expenditures they are making. The market will settle it all out eventually.