API NatGas Price Explainer: Recent Price Swings Not Extraordinary

MDN has run a number of stories on the recent wild fluctuations in the price of natural gas. As we always explain, there is no one “price” of natgas for everyone–but there is the Henry Hub price, which is used for trading futures contracts (NYMEX). That price is watched like a hawk by everyone who trades natural gas. A casual observer of the market might think, based on media coverage, that the swings in the NYMEX price mean something bad. Negative. “The price I’ll pay this winter will go high, and it will stay high, and the shale “revolution” was always just a mirage and this proves it!” Whew. Take a chill pill. The chief economist for the American Petroleum Institute recently penned what we call a natgas price explainer, looking at the recent spikes in the price, providing context for understanding that the price we pay for gas is still, on average, at historic lows. And no, the sky is not falling.
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Price of NatGas Doubles in NEPA – Thanks to Atlantic Sunrise Pipe

The evidence continues to pour in that the addition of Williams’ Atlantic Sunrise Pipeline, a 200-mile greenfield pipeline from northeastern to southeastern PA where it joins the Transco Pipeline, is having a dramatic and ongoing effect on natural gas prices in northeastern PA. As in, the price drillers get for their gas has doubled. Atlantic Sunrise went online in early October (see FERC Approves Atlantic Sunrise for Startup! Pipe Opens Sat. Oct. 6). The main shipper on Atlantic Sunrise is Cabot Oil & Gas. But Cabot isn’t the only shipper, and not the only beneficiary, of higher prices. Seneca Resources and Range Resources are also shipping gas on Atlantic Sunrise, and reaping the price benefits.
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Permian Gas at Waha Hub Briefly Trades at $0, Implications for M-U

This one will make your head explode. We’ve been warning about this for some time, or rather, RBN Energy has been warning about it (and we’ve brought you their warnings). During a recent three hour period of natural gas trading at the Waha Hub (in West Texas), the price of gas went to negative 1 cent per thousand cubic feet (Mcf). You read that right. Someone was paying someone else to buy the gas from them! Why? Too much “associated gas” being produced in the prolific Permian Basin, and not enough pipelines to carry it to other markets. The Permian is all about oil drilling. Natural gas is a byproduct, to the point it may be worth giving it away for free just to get rid of it so a driller can keep pumping oil. The proliferation of natgas in the region is driving prices into the subbasement.
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New England Electric & Gas Prices Spike Due to No New Gas Pipes

This is an “I told you so” post. Last Wednesday, just ahead of what was perhaps the coldest temps for Thanksgiving on record in New England, the price of electricity and the price of natural gas both spiked in New England. Most electricity produced in the region is produced by burning natural gas. Natgas was selling for $13.70/Mcf (thousand cubic feet, or million BTUs) last Wednesday. That was up from an average of $4.67/Mcf this year (up almost 300%). The reason for the spike is lack of natural gas, and the reason for lack of natural gas is a lack of pipelines, plain and simple. And this won’t be the last time. New England will get hosed this winter as prices rocket every time there’s a cold snap. We take no pleasure in saying, “Told you so.”
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Roller Coaster Ride Continues – NatGas Price Spikes Up $0.43

We’re not going to continue to cover news about the price of natural gas each day, because the price goes up, then it goes down, then it goes back up…you get the idea. We will, however, bring you one more story today on the price of natgas, because of the ongoing wild swings in price. The fact that prices goes up and down is not mysterious and frankly, not noteworthy. What is noteworthy is the sudden and dramatic swings–called volatility in the business. Last Wednesday the NYMEX futures price for gas hit a four-year high, up 18% in a single day (see Price of NatGas Spikes to Highest Level in 4 Years – $4.84/Mcf). The very next day the price crashed, down 20% in a single day from the previous day (see Wild Ride – Price of NatGas Crashes Day After it Spikes, Down 20%). The price stayed “low” relative to the previous high for a few days, then spiked up again yesterday, going up 9% to close at $4.70/Mcf. Arctic cold weather is hitting the northeast, combined with somewhat low storage levels, leading to a bump up in price. What lies ahead over the next few days and months? One analyst believes we’ll see prices close to or even above $5/Mcf–tomorrow.
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Wild Ride – Price of NatGas Crashes Day After it Spikes, Down 20%

Yesterday MDN brought you the news that the price of the NYMEX natural gas futures contract closed (on Wednesday) at a four-year high, up 18% (see Price of NatGas Spikes to Highest Level in 4 Years – $4.84/Mcf). We said this in our closing comments: “We maintain the jump in prices is due to psychology more than reality. If traders believe there’s about to be a shortage, they react. In a sense, they panic. And the cycle feeds itself. Until the prices come crashing back down in a few days or weeks.” It took exactly one day. Yesterday the same futures contract (the price of gas at the Henry Hub) closed down $0.80 to $4.04/Mcf–a 20% drop! The day before it went up 18%, next day, down 20%. Day before was the biggest one-day increase in 14 years, yesterday the biggest one-day decrease in 15 years. Help! Let us off this roller coaster!
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Price of NatGas Spikes to Highest Level in 4 Years – $4.84/Mcf

From even a cursory glance at news over the past 24 hours it would be hard to miss the stories blaring the trumpets that the price of natural gas closed at a 4+ year high yesterday (NYMEX futures price closed at $4.84/Mcf), and that the price jumped an amazing 18% in a single day–the biggest jump in 14 years! The primary reason, according to news reports and interviews with traders, is low stockpiles (low storage) combined with short-term weather forecasts for colder weather in the northeast. Indeed, as we write this (sitting in Binghamton, NY), we await the arrival, in a few hours, of an early winter snowstorm of proportions usually not seen until the dead of winter. Some 3-7 inches of snow on the way, more in the higher elevations. The system will affect most northeastern states. Crank up the gas heat! The bazillion dollar question is: How long will the price of gas stay “high”–by which we mean over $3.25/Mcf?
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NatGas Prices in PA Catching Up with Rest of Country

Since our lead story today is about the spike up in the price of natural gas (see Price of NatGas Spikes to Highest Level in 4 Years – $4.84/Mcf), we thought it fitting to bring you a related story that caught our eye–on the price of natgas in Pennsylvania. For years PA, especially the dry gas northeast, has been plagued with some of the lowest natural gas prices in the U.S. Why? Prolific production and not enough pipelines to get all that production to higher-paying markets. The situation is changing, rapidly. Prices in the northeast Marcellus are catching up with the Henry Hub price in southern Louisiana, thanks to multiple pipelines coming online. What does it all mean for Pennsylvanians?
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Again We Ask: Can Dominion South Replace Henry Hub as Benchmark?

More than four years ago MDN posed the question, could an alternate trading hub like Dominion South in Pennsylvania ever replace the venerable Henry Hub trading hub in Louisiana as the world benchmark (see Will ‘Dominion South’ Replace ‘Henry Hub’ for Natgas Pricing?). We said this at the time: “Will Dominion South or another northeast delivery point rise to become the new pricing benchmark–replacing the venerable Henry Hub? Probably not anytime soon. The Henry Hub is just so entrenched. But in time, who knows?” More than a year ago, in 2017, we brought you news that more and more gas traders are using northeast trading hubs, rather than Henry Hub (see Gas Traders Go After M-U’s Local Hubs for Higher Returns). And what’s this? A new article on Bloomberg that says the Marcellus/Utica is changing the way U.S. gas traders buy and sell–that traders do more business in our region than elsewhere. So once again we ask the question, Is Dominion South the new Henry Hub?
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M-U NatGas Prices Dramatically Higher Thx to 3 New Pipes Online

“Come on Jim, quit writing so much about pipelines! Write more about upstream/drilling!” We have had MDN subscribers tell us that (no lie). But here’s the thing: What happens with pipelines *directly* affects what happens with drilling–the willingness of companies to drill more. Case in point: Over the past few weeks two new pipelines have come online: Williams’ Atlantic Sunrise and DTE Energy’s NEXUS. More capacity along Energy Transfer’s recently completed Rover also recently came online. The effect of the three combined has been dramatic. Production volumes have shot up another 1 Bcf (billion cubic feet) in the past month, to over 30 Bcf/d. And get this: While the Appalachian spot price for gas was $1/Mcf (thousand cubic feet) on Oct. 8 ($2 *below* the Henry Hub price), on Oct. 24 the Appalachian price was averaging $3/Mcf! Just 12 cents below Henry. A movement of $2/Mcf! Behold the power of pipelines and why we write about them so much.
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NGSA Winter Forecast: High Demand + High Production = Flat Prices

The Natural Gas Supply Association (NGSA) yesterday released its 2018-2019 Winter Outlook for Natural Gas report (summary below). NGSA says this winter will have warmer than normal temperatures for much of the country. They also predict natural gas demand will reach an all-time high. However, natural gas production will hit all-time highs too. So in the end, prices for natgas (a function of supply and demand) will stay fairly even.
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Price of PA Marcellus Gas Going Higher, Even with More Production

In an interesting coincidence, we spotted two different stories on the same day about the price of gas in the Marcellus Shale–detailing how prices this year are much higher than they were last year at this same time, and speculating that the perhaps we have finally turned a corner and our prices (compared with the benchmark Henry Hub price) will stay higher. Which is good news for both drillers and landowners who get royalty checks from those drillers. Why are northeast gas prices higher today and staying higher? In a word, pipelines. With Rover Pipeline now online and the final laterals that feed it going online soon, with NEXUS coming online by the end of this year (both of those projects carting gas to the Midwest and Canada), and with Atlantic Sunrise and other pipelines coming online to cart gas to the south, even as far as the Gulf Coast, Marcellus/Utica molecules are finding new homes in higher-paying markets. As Martha Stewart says, “That’s a good thing!”…
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Marcellus Prices Improve with New Pipelines

Natural gas produced in the Marcellus region historically has had a hard time fetching prices anywhere close to the benchmark Henry Hub price in southern Louisiana. Why? Because we have so darned much of it! Too much. Not enough ways to get our gas to other markets where it would fetch a higher price. That’s beginning to change. The “differential” (the difference between HH and our prices) is starting to narrow. Marcellus prices are coming much closer to the prices HH gas gets. That’s because of new pipelines coming online to cart our gas to other markets. Our favorite government agency, the U.S. Energy Information Administration, wrote a post yesterday on their Today in Energy website pointing out the decreasing gap in prices between the Marcellus and HH…
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Record Demand + Record Production = Flat NatGas Price This Summer

The single biggest factor in whether or not gas drillers are willing to roll the dice and drill another well is….the price of natural gas. When prices are low, say below $3 per thousand cubic feet (Mcf), drillers are less willing to ramp up the rigs and drill new holes in the ground. When the price goes significantly above $3/Mcf, they’re much more likely to drill. Everyone keeps a close eye on the price. We’ve just come through a hard winter that drew down stocks of natural gas in reserve. Less supply with the same or increasing demand equals higher prices. However, if drillers produce more, a lot more, then supply will meet, or even exceed increased demand and the price will stay about the same, or even decrease. So what about the price for natural gas this summer? The Natural Gas Supply Association (NGSA) has just hauled out its crystal ball to predict what may happen with the price of natgas this summer. As our headline indicates, NGSA believes the price will remain about where it is now. From the report (full copy below): “Our expectation for flat price pressure is based on a forecast for tremendous growth in demand that is matched by even more impressive growth in production”…
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Is Private Equity About to Return to Oil/Gas Drilling in Big Way?

In our headline we pose a question asking if private equity (PE) money is about to be lavished on the oil and gas sector once again. The short answer, according to an analyst who writes about these things, is YES! Anthony Mirhaydari, a senior financial writer at PitchBook, says because of the current high price of oil, “After a drought of investment as management teams aggressively trimmed expenses to stay afloat, an aggressive ramp-up in spending is needed.” According to Deloitte, the oil and gas industry will need to spend on the order of $3 trillion in capital expenditures from now until 2020 (two short years away). Some of that money comes from profits or is already in hand from other sources. But, according to Deloitte, “there is a funding gap of $750 billion to $2 trillion that will need to be met with outside capital.” That trillion dollar delta is where private equity comes in–private investors once again opening up their wallets so more oil and gas drilling can happen. And that’s good news for the entire industry, including the Marcellus/Utica region. More money = more drilling…
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EnerVest & EV Energy Partners on the Rebound with $70+ Oil

Private equity firm EnerVest owns a lot of acreage and wells (most of them conventional) in the Marcellus/Utica region. In addition to investing in land and wells, EnerVest also has its own drilling subsidiary, EV Energy Partners (EVEP), with operations and assets in OH, PA and WV. EVEP is an MLP–a master limited partnership. While EVEP is joined at the hip with EnerVest, they are (on paper) two different companies. EnerVest has vast holdings and is in the top 25 oil & gas companies in the nation. Last July the Wall Street Journal ran a story that said EnerVest was worth nothing on paper. EnerVest pushed back on that story saying it wasn’t true–at least not completely true. EnerVest chief administrative officer, Ron Whitmire, said the company’s vast holdings are structured as more than a dozen companies. Although some of EnerVest’s companies are in trouble, the entire pie, according to Whitmire, is not in danger of bankruptcy. Conversely, Whitmire’s comment also meant that at least one or more of the EnerVest companies were/are in danger of bankruptcy. EVEP was one of them, filing in early April (see EV Energy Partners Files for Chapter 11 Bankruptcy). A new Bloomberg story takes a look at EnerVest and its 72 year-old CEO, John Walker. The article says Walker, “sees redemption ahead as oil prices rise and EnerVest gets its finances in order.” That’s certainly some good news for the company. We might summarize it this way: The current high price of oil has just pulled EV’s bacon out of the fire…
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