Winter is coming, but high prices for natural gas are already here. And forget it if you hope that Texas investors will hinder the current price increase by increasing production. Wall Street prefers to stay sideways.
Diamondback Energy, a major driver in the Permanian Basin, jumped more than 18 percent this month alone, and Range Resources, based in Fort Worth, one of Pennsylvania’s largest producers, Marcellus Shale, tripled this year. Partly because prices are in tears. Natural gas futures jumped 17 percent in September alone, and have doubled in the past six months, reaching more than $ 5 per million BTU. Last time prices were higher this was 2014. Then production went up with prices. But not now.
For the past year and a half, the number of natural gas appliances in the United States has dropped by less than 100 percent. This is very small since 2016, and In 2014, it represented only 33 percent of the number of ships carrying gas.
That reduction in production capacity was largely intentional (although Hurricane Ida and other extreme weather events were also affected). In mid-September, Diamondback said it would spend $ 2 billion to buy its own shares instead of expanding drilling and increasing production at higher prices. He also promised to use 50 percent of the cash flow for investors (although he did not specify how) to reduce the balance. The company boasted of “continued strong performance and improved capital efficiency.”
Diamond is not alone. “Capital Efficiency”, “Increasing the Value of the Shareholder”, “Living in Cash Flow” and other top financial disciplines. Daniel Pricking, founder and chief investment officer of Houston-based Piking Energy Partners, said what put the industry in the shoes first?
In the aftermath of the 2008 financial crisis, the volatility has led to gas shortages and price fluctuations. Manufacturing companies were driven by easy access to capital from banks and private investors. A.D. In 2008, U.S. oil and gas production fell to 5 million barrels a day before it disappeared. A.D. In 2019, it hit a record of more than 12 million barrels, more than double that. However, in most supplies, average oil prices fell below $ 60 a barrel, and gas prices hovered in the $ 2- 3 range that year. Those low prices boom is not translated into shareholder returns. That, says Pringing, “industrial tank.”
Warns not to repeat this, natural gas producers are now talking to investors in anticipation of better returns and more sanctions. Even in the midst of rising prices, shale production has declined from pre-epidemic levels. In fact, these days, the feeling of “drill, baby, drill” is like a Hillary Clinton bumper sticker out of place in the oil pan. Pickering said: It takes relatively long costs for investors to reassess the sector, combined with capital discipline. That belief will not return at least before 2023, and only if the industry maintains its new capitalization, Peking.
The outbreak has given the industry more caution. When people began to isolate themselves at home, work remotely, and drive less, the industry felt the effects. That leaves an indelible mark on manufacturers. Take Diamondback. A.D. Production increased by 8 percent by 2020, but weak demand means lower prices for oil and gas. It lost $ 4.7 billion for the year, compared to $ 315 million in 2019. Some were even worse. More than 100 oil and gas companies have gone bankrupt since the outbreak.
But among those problems is the industry’s ban on natural gas supplies, which could mean higher prices for gas buyers in the coming months. Prices are usually higher during the harvest season as utilities buy gas and prepare for winter warming. However, today’s gas storage supplies are in short supply due to the lack of new drilling and the high demand for production and chemical plants for gas and plastics, fertilizers and other products. So even before the cold weather strikes, prices are already high. That means they will continue to rise all winter.
This summer could be bad news for Texas heating bills. Goldman Sachs predicts prices could double from their current level, hitting $ 10 per million BTU. That translates to heating bills, it depends on where you buy gas and how your plan is set up, but know this – utilities pay four times as much and utilities pay more, and so do you. Probably a lot more.
For that matter, partly because of the oil that covers the gas market. Like gas companies, oil producers are keeping their wells on campus. Even for new wells, the price of a barrel in the West Texas Medium Pump is $ 60 to $ 70 a year. Small oil drilling also means less natural gas production because gas is often a by-product of oil production. In industrial language it is known as the corresponding gas. “Corresponding gas supply is declining, especially in Permania,” said Ed Hirs, a professor of energy economics at the University of Houston. OPEC said it has set a production quota to keep oil in the barrel region for $ 70. If those prices hold, “we expect more related gas to return to the market.”
Still, the question looming over oil is the same as rising prices – will they last? Supply does not require much change in supply to influence prices. Even a few extra devices that will be burned this fall could reverse this year’s price hike. And let’s not forget what industry we’re talking about – a long-time wildlife hunter-gatherer and other endangered species. Financial discipline may be the taste of the month, but sooner or later the waste of high prices can cause some companies – or perhaps many – to break standards and start digging.
Peking is believed to be the first renewed drilling rig from private producers who do not need a response from shareholders and are likely to benefit from new drills this year. He predicted the first signs of gas-heavy performances in South Texas eagle Ford Shale and in East Texas, northwestern Louisiana, and southwestern Arkansas. “I’m sure some gas companies are now digging,” Heir said. “[But] It will be some time before those wells come online. Once you do, the current pressure on prices can finally be released.