U.S. Gas Producer Optimistic Despite Very Low Natural Gas Prices

Despite multi-year low natural gas prices in the United States, domestic producers continue to be optimistic about the long-term prospects of gas as a fuel, both in America and abroad.  The current oversupply in the U.S. natural gas market is set to ease in the coming months as many operators are curtailing production in response to the February price slump, which saw prices tumble to a three-decade low.

This month, the spot natural gas prices at the Waha hub in West Texas, in the Permian, have been negative, sinking to as low as -$1.16 per million British thermal units (MMBtu) on March 18, per EIA data. The negative price, meaning producers have to pay for the gas to be moved out of production areas, was due to oversupply, a lack of enough takeaway infrastructure, and ongoing maintenance of the El Paso Natural Gas Company (EPNG) pipeline system, which delivers natural gas westbound out of the Permian Basin.

Meanwhile, the U.S. benchmark price at the Henry Hub, has traded in recent days at around $1.6 per MMBtu, which is around 75% lower than the average price in 2022.

U.S. natural gas producers and pipeline operators acknowledge there is an oversupply hanging over the market, but they believe that gas will continue to be in demand domestically and internationally for decades to come. Therefore, the U.S. firms see the current market slump as an inevitable bump on the road in a cyclical industry

“It will certainly take some time for LNG coming out of the U.S. and a bit of a slowdown in supply to rebalance,” Chad Zamarin, Executive Vice President of Corporate Strategic Development at pipeline operators Williams Companies, told Reuters on the sidelines of last week’s CERAWeek conference in Houston.Producers have started to reduce the overall natural gas supply.

Antero Resources, for example, released one drilling rig in December 2023 and released one completion crew in February 2024 as a result of the low gas prices. Comstock Resources, for its part, plans to reduce the number of operating drilling rigs it is running from seven to five.  EQT Corporation, currently the largest U.S. natural gas producer, lowered earlier this year its production range guidance “as a response to the price environment we’re in and wanting to make sure there is flexibility,” CFO Jeremy Knop told the Q4 earnings call in February.

“The market is asking for not only production curtailments, but also activity reductions,” Knop said.As a result, gas production fell last week by 0.2%, compared to the previous week, to average 101.4 Bcf/d, per data from S&P Global Commodity Insights cited by the EIA.

With output curtailments because of multi-year low prices, the market will eventually rebalance and show – once again – that the cure for low prices is low prices. LNG exports are also set to rise in the coming years, the halt to LNG permit review notwithstanding.  There are several fully permitted LNG export projects expected to come on line in the next two years.And the large U.S. gas producers are looking beyond the short-term bearish market.

EQT, for example, announced earlier this month a merger agreement to buy Equitrans Midstream Corporation and create an integrated U.S. natural gas company with an initial enterprise value exceeding $35 billion.”As we enter the global era of natural gas, it is imperative for U.S. natural gas companies to evolve their business models to compete on the global stage against vertically integrated rivals,” EQT president and chief executive Toby Rice said.

Supermajor Chevron also touted the importance of natural gas as an energy solution at CERAWeek.”The world is going to need all forms of energy, and natural gas will continue to play a fundamental role,” Clay Neff, president of international exploration and production at Chevron, said at the conference.

Chevron is growing its LNG business along with world energy needs, Neff added, noting that the growing demand for electricity globally needs the energy “to be lower carbon, and renewables cannot support this demand alone.””It is essential we stay focused on developing energy solutions that balance economic development and prosperity, energy security and environmental protection.”