Natural gas producers are feeling the burn of an unseasonably warm December as record temperatures across the Northeast and forecasts for more of the same add to a glut that has pummeled prices most of the year.
Benchmark prices on Monday hit their lowest level since 2001. Shale gas producers saw prices dip at some Pennsylvania trading points to less than 75 cents per million British thermal units, down nearly $2 from a year ago.
Consumers will see lower energy bills. But fragile energy companies whose cost-cutting already has dented the economy in shale-rich areas such as Pennsylvania won’t see the usual winter bump in revenue.
The price plunge is being driven by concerns that already-high supplies of gas will only grow if utilities don’t start dipping into them to heat homes.
“We’re really seeing this reduced winter weather heating demand taking effect,” said Teri Viswanath, a natural gas analyst at BNP Paribas in New York, who noted forecasts pointing to the warmest December on record. “This really continues that sell-off we’ve seen over the past two weeks.” If the effects of El Nino in the Pacific linger, combined with a weather pattern that is blocking arctic air from heading into the Midwest, record storage and related low prices could last into next year.
“There’s a lot of gas in storage, and production levels are still healthy. Without a turnaround in the weather, there’s not much to halt this kind of price slide,” said Gene McGillian, a senior analyst and broker at Tradition Energy in Stamford, Conn.
Gas for January delivery fell 9.6 cents, or 4.8 percent, to $1.894 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since September 2001. The benchmark price is down 34 percent this year.
Utilities have increasingly switched from coal to gas-fired power plants, sparing already-struggling coal producers from the most recent volatility. Coal prices were flat last week after tumbling for most of the year.
“There’s not a lot of buying going on,” said Andrew Moore, managing editor of Platts Coal Trader in Houston.
Shares of power producers and gas drillers slid further. The warm weather is hitting at a time when producers were hoping for some relief from prices that forced budget cuts, reduced drilling and prompted layoffs.
Even though most top Marcellus shale producers have reduced activity, production continues to outpace domestic supply and pipeline capacity.
“Despite the drop in gas-directed drilling rigs, supply has been way more resilient than anyone imagined,” said Matthew Miller, an equity analyst at S&P Capital IQ in New York.
The market wants to see companies curb production, Miller and Viswanath said. Demand won’t increase further until exports pick up next year, they said.
Houston-based Cabot Oil & Gas, Pennsylvania’s second biggest shale gas producer, has curbed production from some wells. Spokesman George Stark noted that, although painful to producers, the low prices and warm weather “are all creating a consumer holiday of sorts.”
Customers see the commodity charge on gas bills drop every three months and are using less gas through two warmer-than-normal months. Utilities looking to extend gas service have joined a state program that makes adding lines to new neighborhoods cheaper for customers.
“While we can’t forecast the weather patterns for the rest of the winter, we do want to see residents, businesses and industry take advantage of these prices and help increase use and utilization of clean burning natural gas,” Stark said.
Bloomberg News contributed to this report. David Conti is a staff writer for Trib Total Media. He can be reached at 412-388-5802 or firstname.lastname@example.org.
This article was written by David Conti from The Pittsburgh Tribune-Review and was legally licensed through the NewsCred publisher network.