Pipeline, LNG Plant Outages Cause M-U Gas Prices to Plummet

The “bad old days” of low low prices for natural gas have returned to the Marcellus/Utica region–at least temporarily. During the past few weeks natural gas prices at Appalachian supply hubs Dominion South and Tennessee Zone 4 Marcellus fell from about $2 per million British thermal units (MMBtu) in mid-September to lows of 76¢/MMBtu and 65¢/MMBtu, respectively, on October 4. Ouch. Why the drop-like-a-rock in price? For a variety of reasons, but there are two main factors…
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IHS Markit Predicts NatGas Price Will Fall Below $2/Mcf in 2020

We recently received a press release from IHS Markit, a major analytics company that tracks data in the oil and gas industry. They have a new report that says (sit down please, we’re talking to you MDN reader)…the average price for natural gas over the course of 2020 at the Henry Hub (the NYMEX traded price) will average less than $2 per thousand cubic feet (Mcf). In other words, get ready, the bottom is about to fall out of the market for the price of gas once again. And it’s going to be far worse than a few years go. The last time the price was lower than $2/Mcf on average was in 1995–nearly 25 years ago!
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CME Group Launching First-Ever Physical LNG Futures Contract

The CME Group, formerly known as the Chicago Mercantile Exchange, is a global derivatives marketplace based in Chicago–originally founded to sell physical commodities like grain and eggs. These days CME Group offers a range of financial trading products across all major asset classes, including those based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals. CME Group is in the process of launching the world’s first-ever physically-delivered LNG contract. What is that and how does that affect our region?
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EQT Plans to Make Money with $2/Mcf NatGas Price

For years MDN has observed that Cabot Oil & Gas is one of the few Marcellus/Utica drilling companies that can “spin straw into gold”–meaning it makes money on selling natural gas even when the price of that gas is in the basement (see Marcellus Driller Cabot Oil & Gas: Wall Street’s NatGas “Unicorn”). The new management at EQT aim to turn their company in a spinning-straw-into-gold company too. In a recent interview with the Pittsburgh Business Times, EQT CEO Toby Rice said his strategy for making $500 million in “free cash flow” within two years anticipates the price of natgas to be $2 per thousand cubic feet (Mcf).
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Can a Single US LNG Export Facility Affect the Price of NatGas?

No doubt you’ve noticed the price of natural gas has been relatively low over the past few weeks, dropping from around $2.40 per thousand cubic feet (Mcf) a month ago to now flirting with $2/Mcf. The last time gas prices went below $2/Mcf was in 2016. One of the reasons, believe it or not, that the price has fallen dramatically over the past few days is because of a single LNG export facility–Cheniere Energy’s Sabine Pass facility (which exports some M-U gas).
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McKinsey: Marcellus Production Will Grow 6% per Year Thru 2030

click for larger version

Powerhouse consulting firm McKinsey & Co. recently released the “North American gas outlook to 2030” report (summary below) with some interesting findings. Among them: Natural gas production in the Marcellus/Utica will rise an average of 6% per year from now until 2030 (next 11 years). And because of the huge supply of gas coming from M-U and the Permian, the price of natural gas will average $2.75 per thousand cubic feet (Mcf) for the long-term, perhaps even a bit lower than $2.75. That’s certainly unwelcome news–but we have to know what we’re dealing with to know how to meet the challenges ahead.
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Switcheroo: Marcellus/Utica Now has More Pipe Capacity than Gas

The pipeline situation today in the Marcellus/Utica region is far different than it was just a year or two ago. Not long ago lack of pipelines meant we had an overabundance of natural gas in the region without buyers, driving prices into the basement. Today? It’s all different. Because of new and expanded pipelines coming online over the past couple of years, producers (i.e. drillers) today have options on where to send their natural gas–fetching far better prices in new markets. In fact, according to the analysts at RBN Energy, “The spate of pipeline expansions and additions in the past two years have not only caught up to production but capacity now far outpaces it.” That’s a big switcheroo.
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NGSA Summer Forecast: High Demand + High Production = Flat Prices

The Natural Gas Supply Association (NGSA) yesterday released its 2019 Summer Outlook for Natural Gas report (summary below). It’s not much different than the Winter Outlook was (see NGSA Winter Forecast: High Demand + High Production = Flat Prices). NGSA predicts natural gas demand will reach new all-time highs this summer. However, natural gas production will also hit new all-time highs too. So in the end, prices for natgas (a function of supply and demand) will stay flat.
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Foreign LNG Imports Kept New England Winter NatGas Prices Low

Trinidad’s Atlantic LNG facility

Although natural gas prices in New England at the Algonquin City Gate trading hub (Boston) spiked a few times this past winter, they didn’t spike anywhere near as much as the previous winter. In January 2018, prices at Algonquin spiked to $78.98/thousand cubic feet (see New England’s Lack of Pipelines = Most Expensive Gas in the WORLD). In January 2019, prices at Algonquin never got over $13.56/Mcf. The difference? Foreign LNG imports.
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Permian NatGas Price Falls to $0.12/Mcf Following Equipment Failure

Reuters is reporting that the price of natural gas selling at the Waha Hub in the Permian Basin (West Texas) averaged just $0.12 (12 cents) per thousand cubic feet (Mcf) yesterday, a new record low. But wait! MDN reported last November the price at Waha had hit minus 1 cent/Mcf–people paying someone else to take their gas (see Permian Gas at Waha Hub Briefly Trades at $0, Implications for M-U). True–but that was for a three-hour period last November. Yesterday’s low price was the average for the entire day.
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PA Shale Drilling Permits Issued in January Show Mixed Bag

The folks at Argus Media have done an analysis of the number of shale well permits issued in Pennsylvania for January 2019. The numbers show the number of new permits issued during January were up 72% from the number issued in December 2018, but down 11% from the number of permits issued in January 2018, one year earlier. Can we divine anything from this mixed bag of numbers?
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Antero Now Sells 30% of NatGas to Higher-Paying Midwest Market

Antero Resources, one of the biggest drillers in the Marcellus/Utica, is also one of the best hedging companies in the business. They routinely lock in prices for their gas up to a year (or more) in advance, to ensure they make a tidy profit. And Antero averages higher prices for their gas sales than just about any other Marcellus/Utica producer. This morning Antero issued an update on their latest hedging moves, which is always interesting. But that’s not what caught our eye. They also issued a fourth quarter update. No, not for the entire fourth quarter as we still have a few weeks left in 4Q and the full, official 4Q update won’t come along until maybe the end of January. But in this interim 4Q update, we spotted the news that because of the addition of the Rover Pipeline, Antero now sells a full 30% (up from 16%) of their natural gas production to Midwest markets–markets that pay, on average, more for gas than elsewhere.
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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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