Natural Gas' Hidden Future Of Muted Rising Prices

seekingalpha04-06

Natural gas prices remain low, below $2, due to excessive production.Production has significantly dropped in the past few months, even below last year's levels.The EIA reports important performance ...

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Jun Natural gas (NG1:COM) prices remain precipitously low being significantly under $2. In past articles, we addressed production issues such as in our Too Much Production Of Natural Gas, outlining the massive nature of exactly that, too much production. In the past few months, production took a significant drop, even below last year. It seems as if the loss of production came in the same fashion as card sharks produce needed aces from within their coat sleeve. Would you join for a look in the mirror at the hidden ace and its suit? Natural Gas Production & Storage The EIA reports weekly several important performance factors for investors' viewing. We record several of these parameters on a weekly basis. In the coming table, we include a selective summary for the natural gas balances.   NG Production by Week  Differences in Storage (YoY) (BCF)   Differences in Storage WoW (BCF)  Production 2024 (BCF/D) Production 2023 (BCF/D) Difference(BCF)   12/22/23 316 -87 111 107 4   1/19/2024 142 -325 103.6 106.9 -3.3   2/16/2024 397 -49 106 109 -3   3/2/2024 659 -36 105.7 105.6 0.1   Click to enlarge A graph from the EIA storage report included next illustrates the value of the positive growth in storage differences. EIA Notice the steep positive divergence from the five-year average in the above chart. Storage units are billions of cubic feet (BCF). The five-year average difference is now approximately 600 BCF. Weekly production values, expressed in billions of cubic feet per day (BCFPD), help us understand the magnitude of the change. For example, at a net difference of 5 BCFPD, one hundred and twenty days or a third of the year, roughly, are required to balance the two. Although production dropped year over year, a massive overhang for recovery exists taking a considerable length of time especially if the deviation expands up to the summer when natural gas power consumption kicks in. The Natural Balance The story in pricing doesn't end with correcting the storage imbalances; actually, it is just starting. Producers purposefully cut production by 5%+ or thus far 6 BCFPD in order to speed up the balancing act. An analysis of this present market condition suggests a natural buffer. Most producers hedged prices in order to survive the glut. One, Antero Resources (AR) did not. At Antero Resources' last company conference, management provided a couple of very informative slides. The first gives investors an interesting and worthwhile insight into the producer's operations. The yellow bar equals production costs, the upper green the dividend and lower orange, the interest expense cost. Although actual numbers weren't stated, valid estimates are possible using the few numbers from Antero. test For Antero, the base case cost (minus capital) equals approximately $1.40 per BCFPD. The Haynesville operations base case equal approximately $2+ without including significantly higher capital costs. The total production operations produced at above 110 BCFPD or 5% higher prior to the recent slowdown. The capital for this production was spent. We might expect natural price controls to kick in in the $2.0-$2.25 price range until further capital becomes necessary, setting up a secondary natural range above $3.0. Predicting lengths of time for each of these is likely a hopeless exercise, but it seems that with the long period for balancing storage, it will consume at least the entire year and likely well into 2025. The lagging production theme accepted by the majors is now being greeted with preparation. From Chesapeake Energy (CHK), it \"is also deferring production from around 80 wells this year, which would give it up to 1.0 bcf/d of productive capacity available from deferred turn in line wells (TILs) by the end of 2024.\" The company is preparing more wells. EQT (EQT) is doing the same according to management at some level. Additional production defined by prices will likely come back. Looking Past 2024 A look past 2024 also seems in order. Again, Antero provided a comprehensive slide. test Antero expects significant growth in LNG exports into the rest of the world. This might be a very debatable concept though possible. In the present time, Europe found sources and with warmer winter weather is well supplied for the next seasonal rotation. Capacity for LNG will increase significantly, in Antero's view, but what isn't stated with clarity, in our view, is that a spare capacity of 5-6 BCFPD supply is already in hand, leaving far less than the slide predicts in shortages. Prices, stated above, will be higher in the later portion of 2024, in our view, into the mid $2 region. After 2024, prices will continue at least into the $3+ range with new LNG capacity coming on-line and production increased to balance the markets. What we don't yet see coming is a return to $5 or $10 pricing. It might occur, but at this point, not so likely. Risk With natural gas, world-wide competition adds risk. In Europe, natural gas storage exited the winter at a record high level, which pressures future near-term importing. Other risks might include a recession, or an ending of the Ukraine/Russian war bringing things back fully on-stream.  With these concerns in mind, natural gas seems still at extremely low prices with a greater possibility for prices to increase. But our view also suggests prices will find plateaus as natural buffering kicks in. We sense that prices in the middle $2's and higher $3 will find resistance. Perhaps natural gas transportation is a better choice for now. The card shark showed his hand playing an ace of hearts hidden in the sleeve, perhaps a bleeding heart.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2425595340"}