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.

 

 

OPEC plus decides fate of energy market in 16 minutes

The Ministers of the OPEC plus, who met via video conference, rubber-stamped in just 16 minutes the monthly production hike by 400,000 bpd. In the shortest meeting so far in its history, OPEC+ decided on Wednesday to increase the collective production by 400,000 barrels per day (bpd) in March 2002. 

This left production plan unchanged and pushed Brent price above US$90/barrel.

Some analysts, and traders, had expected a higher production increase, considering the recent rally that has frustrated major oil-consuming nations, including the United States.

Earlier this week, Goldman Sachs had expressed the view that OPEC plus might decide to announce a larger production increase for March than the usual 400,000 bpd, keeping in view the recent oil rally to and the potential for renewed discontent from major oil importers at these high price levels.

OPEC plus confirmed the 400,000-bpd increase in record time and didn’t even plan a press conference after the meeting. 

Brent Crude prices returned to US$90 per barrel just after news of the modest production increase and the record-short meeting broke.

While the nominal increase is modest, as in the previous seven months, many producers within the OPEC+ group are struggling to pump to their quotas, leaving an increasingly large gap between production increase on paper and actual growth in output, which leaves the market tighter than many analysts and forecasters, had anticipated just a few months ago.

Going forward, the market will be closely looking at how much of that increase OPEC plus can actually deliver, considering that half of its members have lagged in ramping up output to their quotas so far, while more producers­—with few exceptions such as Saudi Arabia and the UAE—will be struggling to raise production.

According to the production table provided by OPEC, Saudi Arabia and Russia will each have a quota of 10.331 million bpd in March 2022.

The next OPEC plus meeting is scheduled for March 02, 2022.