Fall in natural gas prices new headache for United States

A 46% drop in natural gas prices this year is rippling across the US shale patch, threatening to slow drilling and chill deal-making in a move unthinkable six months ago as global demand soared.

Analysts are chopping their outlook for gas prices this year, and for production and earnings. The drop has also put a cloud over merger and acquisition activity, analysts said.

Such moves were unfathomable six months ago as Russia reduced its gas flows to Europe and US gas became a hot commodity. The number of active gas-drilling rigs jumped about 48% to 157 in the first six months of 2022, according to data from oilfield services firm Baker Hughes.

Analysts expect gas drilling rigs to fall beginning this month. Two services firms - Liberty Energy and Helmerich & Payne - recently warned they may need to relocate equipment as operators pull back in gassy areas.

US gas futures were trading on Wednesday at US$2.42 per million British thermal units (mmBtu) amid warmer weather and a prolonged LNG export plant outage, down from over US$9 per mmBtu in August 2022. They averaged US$5.46 per mmBtu last year, the highest price in over a decade.

The outlook is for more of the same. Prices will remain around US$2.50 per mmBtu this summer, down from an earlier US$3.50 per mmBtu outlook, predicts energy technology firm Enverus. It also sees exit-to-exit 2023 production growing by 1.7 billion cubic feet per day (bcfd), from 3 bcfd in 2022.

The company says well completions activity in the Haynesville gas region will need to fall by about 8% to prevent storage from exceeding a limit of 4.3 trillion cubic feet (tcf).

"If we don't see a decline in activity in the Haynesville, we'll blow through" the US storage maximum of 4.3 tcf, said Jonathan Snyder, an Enverus vice president.

The gas-price drop has slowed deal-making and threatens some proposed acquisitions that have not closed, said Andrew Dittmar, who tracks mergers and acquisitions for Enverus.

Prices further out should stave off any collapse in drilling and deal-making. Gas delivered in January and February 2024 is trading above US$4 per mmBtu, well above where those contracts traded in recent years.

"Is someone buying the assets for more than the next 10 months? If it is more than for the next 10 months, current pricing shouldn't drive the deal value," said Thomas McNulty, who advises on mergers and acquisitions and runs his own firm.