Coverage: Natural gas prices fall

The drop in natural gas prices is mirroring that of oil and causing issues for companies as well. Mild weather is also playing a role in how much consumers are (or aren’t) using.

The Wall Street Journal had this story by Timothy Puko:

Mild temperatures across the U.S. have sent natural-gas futures tumbling to their lowest level in nearly two years, more good news for consumers already reaping the benefits of a 30% decline in gasoline prices.

Natural-gas prices dropped 9% Monday, their largest decline since February. It extended a losing streak to three sessions since the government said gas stockpiles rose above year-ago levels for the first time in 2014.

Record U.S. oil-and-gas production, which has played a major role in driving the 48% decline in crude prices since June, is overwhelming tepid demand for home-heating fuels amid an unseasonably warm December.

Many investors who earlier this year placed bets on rising gas prices have had to reverse course and cover those bets, as strong production has now closed a stockpile shortage that had lingered for nearly a year.

As recently as November, colder-than-normal weather had traders expecting high demand and higher prices. But the warm spell has led to an about-face as investors recognize that there isn’t enough demand to absorb the record supply.

But the glut isn’t slowing some producers, Clifford Krauss reported for The New York Times. Southwestern Energy CEO Steven Mueller is continuing to produce where others are pulling back:

With the price of natural gas plunging along with oil in recent weeks, virtually no one is following his lead outside of Southwestern. Twelve of the 13 rigs still drilling among the chicken farms and cattle ranches are Southwestern’s. The 45 other rigs — once operated by giants like Chesapeake Energy, BHP Billiton and Exxon Mobil’s XTO Energy a few years ago, when natural gas prices were more than twice as high — are gone.

“Most of the companies — on the pure economics, oil versus gas — think we are crazy,” Mr. Mueller acknowledged with a thin smile. “I mean, when I walk in the room it’s like, ‘They’re crazy, they haven’t gone to oil.’ ”

After so much hype and billions of dollars in investment, the nation is deluged with gas and not enough pipelines to carry the bounty to consumers. One energy company after another, year after year, has written off or slimmed down its investments here and in Texas and Louisiana.

But not Southwestern Energy, a Houston-based company that has risen from being the nation’s 40th to become the fourth-largest producer of natural gas. Southwestern’s discovery of the Fayetteville shale field a decade ago, and its quiet leasing of the heart of the field at bargain prices, made the company a power. Since 2007, Southwestern’s Fayetteville production has risen 800 percent and its reserves are up 570 percent. It still drills more than 30 new wells every month here.

And in October, Mr. Mueller doubled down on gas by committing $5 billion to develop 413,000 acres of reserves in the Marcellus and Utica shale fields of West Virginia and Pennsylvania previously owned by Chesapeake, raising Southwestern’s debt considerably.

Bloomberg reported in a story by Christine Buurma that natural gas prices reached a two-year low:

Natural gas futures tumbled to a two-year low in New York as mild weather and record production threatened to expand a stockpile surplus.

Futures slumped 9 percent to the lowest settlement since Jan. 9, 2013, making the fuel the worst performer among 22 materials in the Bloomberg Commodity Index. Gas stockpiles totaled 3.295 trillion cubic feet as of Dec. 12, 47 billion more than a year earlier and above the year-ago level for the first time since 2012,government data showed. The surplus will “balloon to just shy of 200 billion cubic feet” by the start of 2015, according to JPMorgan Chase & Co.

Temperatures may be above normal in most of the lower 48 states through Dec. 26 and on the East Coast through Dec. 31, according to Commodity Weather Group LLC in Bethesda, Maryland.

“The hope of cold weather boosting inventory withdrawals is receding, and that’s opened up a floor in gas prices,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “The weather models are generally less supportive for the persistence of cold.”

Natural gas for January delivery fell 32 cents to settle at $3.144 per million British thermal units on the New York Mercantile Exchange. Volume for all futures traded was 59 percent above the 100-day average at 2:41 p.m. Prices have dropped 26 percent this year, heading for the biggest annual loss since 2011.

Business Insider’s Akin Oyedele pointed out that demand would have been lower as oil prices drop:

There’ll be less need demand for gas for heating this year. Coupled with this is the fact that US gas production is booming. The EIA forecasts that gas production this year may increase 5.5% to a record 74.26 billion cubic feet per day.

RBC Capital Markets slashed its forecast for natural gas prices last week. A team of analysts led by Leo Mariani wrote: “We think North American natural gas fundamentals are somewhat fragile going into 2015, and could remain challenged for the next 12-18 months on robust supply.”

All this means that consumers have more money to spend, but energy companies will struggle to balance supply with the drop in demand. Investors are less likely to fund new projects, meaning that a change in the weather or gas prices could cause a spike in prices. Commodities are proving a tough market to predict.