Crash in NatGas Price Likely Means Cut in New M-U Drilling
The NYMEX Henry Hub futures price closed lower once again yesterday, at $1.92 (down a nickel from the previous day). These are prices we haven’t seen in three years. The current crash in price is prompting analysts to speculate (with good reason) that it will result in less new gas well drilling in gas-focused plays, including the Marcellus/Utica and the Haynesville. However, gas volumes won’t necessarily decrease, corresponding to less gas drilling. Why? Because oil is all the rage right now. With more oil drilling comes more associated natural gas production.
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U.S. natural gas and power prices hit multi-year highs in mid-January with the prospect of frigid temps and snow storms in various portions of the country (see 
Once a month, the analysts at the U.S. Energy Information Administration (EIA) issue the agency’s Short-Term Energy Outlook (STEO), their best guess about where energy prices and production will go in the next 12 months or so. We sometimes poke good-natured fun at the EIA because their predictions go up in one month, and in the next month, they go down, etc. What about the latest STEO dart board, published yesterday? It won’t surprise you to read that due to warmer weather, the EIA prognosticators believe the average Henry Hub natural gas spot prices will remain “subdued” around $2.40/MMBtu in February and March. What about for the entire year?
Analysts for S&P Global Commodity Insights have been pouring over the forward prices for natural gas contracts in 2024 and the news is not good. Traders actively bidding on forward contracts in 2024 have priced natural gas below $4/MMBtu. In the forwards market, the summer 2024 strip was $2.45/MMBtu as of Jan. 22, after spending most of 2023 solidly above $4/MMBtu. December 2024 Henry Hub forwards settlements have averaged $3.69 year to date, according to data from S&P. The reason for prices remaining low for all of 2024? A delay in several new LNG export operations from coming online.
Just one week ago, the price of natural gas, both the futures price and spot (physical) price, jumped — in some cases by four times in the space of just a couple of days (see 
Well, that didn’t take long. Yesterday we told you about the huge jump in the price of natural gas, both the futures price and the spot (physically traded) price, due to the brutal cold snap much of the country is currently experiencing (see 
U.S. natural gas and power prices hit multi-year highs on Friday with the prospect of frigid temps and snow storms in various portions of the country. The extreme cold was expected to bring record gas demand and cut supplies by freezing wells. The spot price of natural gas at various trading hubs from the West Coast to Middle America to the East Coast all jumped. Of particular interest for us, spot gas prices at the Eastern Gas South hub, widely considered the “benchmark” for the Marcellus/Utica, jumped from $2.45 per million British thermal units (MMBtu) on Thursday to $10.40 on Friday — the highest price at that hub since July 2008.
Yes, we’ve noticed. The Henry Hub NYMEX futures price for natural gas soared yesterday. It has been on an upward trend for the last six trading days in a row. Yesterday, the NYMEX price jumped $0.21 (6.6%) to close at $3.19 per MMBtu. Spot (physical) prices have also moved higher. What’s causing it? And will the futures price now stay above $3?
EQT CEO Toby Rice appeared on CNBC’s ‘Money Movers’ program last Friday to discuss what he expects for natural gas prices this year, what lower natural gas production means for EQT, and more. It was an interesting segment (watch it below; it is just four minutes long). Rice said, among other things, that a key issue for people to understand is that the marginal cost (i.e., the breakeven cost) in the U.S. to produce natural gas is around $3.50/MMBtu, which will hold production levels flat. Prices lower than that lead to lower production.
Zacks is one of the top investment research firms focusing on stock research, analysis, and recommendations. A new alert issued by Zacks asks this question: Is Natural Gas Poised for a Turnaround After 2023 Slump? The article recaps what happened to the price of natural gas in 2023 and what may happen in 2024. Interestingly, the author says the natural gas space “is currently quite unpredictable and spooked by the sudden changes in weather and production patterns. As such, investors are clueless about what to do.” Boy, that about sums it up, right? Even without a clue about the future, Zacks makes a couple of stock pick recommendations (of M-U companies) that it feels are safe bets…