Global Glut Keeps a Lid on Natural-Gas Prices
May 28 2020 - 11:23AM
Dow Jones News
By Ryan Dezember
Even the biggest producer in the country is backing away from
the dismal market for natural gas.
EQT Corp. has curtailed nearly 25% of the output from its wells
in Appalachia, holding it in the ground for when prices for the
power-generation fuel aren't so depressed. Given the way canceled
orders are piling up for export cargoes of liquefied natural gas,
it may be a while.
Natural-gas futures for July delivery fell 2.8% to $1.83 per
million British thermal units on Thursday, down 29% from a year ago
and well below what is needed to cover production costs for many
companies.
Thursday's decline accelerated after the U.S. Energy Information
Administration reported inventory levels rose last week by slightly
more than analysts had expected to bring stockpiles 42% above the
year-ago level.
A month ago, natural-gas prices appeared ready to pop. Major
producers, including EQT, had cut back on drilling in response to
falling prices. Meanwhile, a historic crash in crude prices
prompted drillers to shut in oil wells, which produce a lot of
natural gas as a byproduct. And it was coal, not natural gas, that
bore the brunt of the reduced demand for electricity during the
coronavirus pandemic. On May 5, natural-gas futures nosed above $2
for the first time since January.
The rallies have been fleeting, though. Mild May weather has
limited domestic demand, brimming storage facilities abroad have
reduced exports and the flow from oil wells hasn't declined by as
much as expected. Plus, oil prices have been rising, suggesting
that the crude curtailments won't last long.
Prices made another run higher before Memorial Day and the
arrival of summer weather that had many Americans switching on air
conditioners.
Analysts also credit EQT's big production cut, which the
Pittsburgh company's pipeline arm disclosed in a securities filing
early last week. The parent company said Tuesday that the
curtailments of 1.4 billion cubic feet a day began on May 16 and
could last through June, depending on prices.
Prices aren't expected to go much higher this summer. Goldman
Sachs Group Inc. analysts forecast an average summer price of
$2.04, though last week they warned clients that prices could fall
below $1.50 if domestic demand fails to pick up, production remains
apace and overseas buyers keep canceling orders for liquefied
natural gas, or LNG.
Such shipments have helped balance the U.S. market, though the
pandemic has sapped global demand for shale gas and bloated
stockpiles in Europe and Asia, which were already robust after a
mild winter left unburned a lot of gas meant for heating.
The main European price, set in the Netherlands, plunged to
$1.13 last week, down roughly 75% from 2019's average of $4.87,
according to JPMorgan analysts. The Asian benchmark, which traded
above $10 two years ago, dropped to $2.11 last week.
The collapse has prompted a rash of cancellations for LNG
deliveries. The daily volume of natural gas purchased by U.S.
export facilities has declined by about one-third to 6.5 billion
cubic feet this week, from more than 9.6 billion cubic feet at the
end of March, according to S&P Global Platts.
LNG demand is poised to fall further, said SunTrust Robinson
Humphrey analyst Welles Fitzpatrick. He has counted 45 canceled
shipments in July, from buyers ranging from commodity-trading firms
to utilities in Japan. The lost orders would reduce the amount of
gas absorbed by export terminals to less than 4 billion cubic feet
a day, Mr. Fitzpatrick estimates.
Forecasts like that have made it difficult for traders to gauge
the direction of prices at a time of year when the arrival of hot
weather should lift demand for electricity to power air
conditioners.
In February, hedge funds and other speculators had built up the
biggest short position, or bets that natural-gas prices would fall,
on record, according to Commodity Futures Trading Commission data.
That trade was unwound in late April but since then traders have
waffled between going long, or betting that prices will rise, and
short, the opposite.
Energy-trading firm Ritterbusch & Associates told clients in
a note that it is betting on prices to run up to around $2.35 in
the next couple of weeks as summer heat juices demand, but that the
rise could again be short-lived.
"This market should still be viewed as a trading affair rather
than one in which a long position can be established as a
longer-term investment, " Ritterbusch said.
Write to Ryan Dezember at ryan.dezember@wsj.com
(END) Dow Jones Newswires
May 28, 2020 11:08 ET (15:08 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
EQT (NYSE:EQT)
Historical Stock Chart
From Mar 2024 to Apr 2024
EQT (NYSE:EQT)
Historical Stock Chart
From Apr 2023 to Apr 2024