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Tumbling US natural gas prices prove unstoppable, hurting producers

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Tumbling US natural gas prices prove unstoppable, hurting producers
© Reuters. FILE PHOTO: A view of BKV Corp?s commercial carbon capture and sequestration project, in Bridgeport, Texas, U.S., December 7, 2023. REUTERS/Arathy Somasekhar/File Photo

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By Arathy Somasekhar

BRIDGEPORT, Texas (Reuters) – For nearly a year, U.S. producers have slammed the brakes on production as prices fall. But relentless output gains including from oil companies that pump gas as an oil byproduct have unleashed record supplies.

In the oil versus gas contest, gas producers are losing out. Some are shutting in wells, canceling projects or selling themselves to rivals to avoid losses. Natural gas prices this month fell to an inflation-adjusted 30-year low of $1.59 per thousand cubic feet, benefiting consumers of the fuel like utilities, but hurting producers who are selling at nominal prices as low as they were in the depths of the COVID-19 downturn.

Nowhere is the pain of cheap gas as evident as Denver-based BKV Corp. In the last five years, it spent $2.7 billion to acquire 4,000 gas wells and two gas-fired power plants. It also pledged $250 million to build a dozen underground carbon capture and storage sites to make its gas more climate friendly.

The nosedive in U.S. gas prices has stalled BKV’s plans for an initial public offering and scuttled the carbon joint venture with Verde CO2 to couple its gas and power plants with carbon sequestration. BKV last year narrowly avoided loan defaults with a $150 million bailout by its parent.

Majority-owned by Thailand power giant Banpu Public Co., the little-known BKV in 2016 began buying scores of U.S. gas wells, taking castoffs from oil producers’ Exxon Mobil (NYSE:), Devon Energy (NYSE:) and others.

“We absolutely want to be the biggest natural gas producer in the country. That’s my ambition,” BKV Chief Executive Christopher Kalnin said in an interview here in December at its first carbon-sequestration site.

BKV’s profits soared to $410 million in 2022 on strong natural gas prices after Russia’s invasion of Ukraine spurred huge demand for exports of liquefied U.S. gas. The company launched a plan to build a U.S. version of its Thai parent, tying together natural gas and power. The plan included an IPO to help finance the gas-to-power expansion and a complement of carbon-burying wells.

CLIPPED WINGS

But BKV fell back to earth under prices suffering from a relentless expansion of U.S. natural gas output. Its profit fell to about $79 million in its most-recently reported nine-month period.

U.S. gas firms last year cut drilling 22% to stem the gusher. But the flows keep coming: The U.S. will pump 105 billion cubic feet a day of gas this year, up 2.5 billion cubic feet a day in the last year. That increase is enough to fuel 12.5 million U.S. homes for a day.

In most industries, volume increases are good. More production equals more profit. But rising output has overwhelmed efforts to curtail drilling and even demand from frigid temperatures, leading to a price drop that knocked U.S. gas recently to less than a third of 2022’s average $6.50 per million British thermal units. By contrast, benchmark WTI crude prices fell just 17%.

Oil prices have held steadier thanks to global supply cuts by major OPEC producers and their allies.

But soaring gas production, especially from oil companies who view gas as a byproduct of their output, has proven “relatively insensitive to prices,” said Nicholas O’Grady, CEO of U.S. shale gas explorer Northern Oil and Gas.

Gas producers have been reluctant to cut output deeply on the prospects of giant new liquefied natural gas (LNG) plants opening this decade, he said.

LNG exports would drain the excess gas supplies and should return prices to levels that make gas profitable to drill again by 2025, O’Grady and BKV’s Kalnin predict.

There are four U.S. projects with export permits on the drawing boards that would consume up to 6.3 billion cubic feet of gas that if they go ahead would be producing LNG later this decade.

The danger is that third wave of new LNG plants may be delayed or lost forever. President Joe Biden’s administration last month indefinitely paused reviews of new gas-export permits, jeopardizing as much as 32 billion cubic feet per day of future consumption.

U.S. natural gas producer Comstock Resources (NYSE:) said last week it would reduce the number of rigs in operation and suspend its dividend until gas prices rise sufficiently, while rival Antero Resources (NYSE:) said it would cut drilling and drop project spending budget by 26%.

‘PERFECT STORM’

BKV, short for Banpu Kalnin Ventures, began operations in Pennsylvania in 2016 with a plan to buy additional old gas fields from big oil companies, invest only enough to hold production steady, wait for prices to rise and – only then – invest in expanding production.

The moment appeared to arrive in mid-2022. As U.S. gas climbed to over $9 per thousand cubic feet, BKV’s Kalnin launched a costly and ambitious expansion plan.

In July that year, he closed on a $750 million deal for Exxon Mobil gas properties in North Texas. The same month, he acquired a Temple, Texas, gas-fired power plant for $460 million. Weeks later, he followed that deal with a $250 million partnership with Texas-based Verde CO2 LLC to build a dozen carbon sequestration sites across the United States.

“We didn’t see prices collapsing like they did,” said Kalnin at the opening of his first carbon sequestration site in December.

Kalnin, a former McKinsey consultant who spent his early years in Thailand and later worked for the country’s national oil and gas company, hasn’t given up on his gas-to-power empire.

“(Gas prices) are setting up for another fly-up in the second half of 2024,” Kalnin said in December, pointing to forecasts for rising LNG demand.

“There are micro windows for IPOs opening up,” a spokesperson added on Tuesday. “We are hoping to stay ready for when that micro window opens. Market performances for IPOs and gas prices need to improve,” she added.

Associated gas, which comes out of wells alongside oil, yanked the rug out from Kalnin’s vision. More than a third of all U.S. gas production comes from producers drilling for oil, according to government estimates. That figure is rising as wells mature and more gas comes up than oil.

BKV last year won a lifeline from its parent, selling shares to Banpu for $150 million to avoid breaching debt covenants. Most of the cash was put into a debt service account.

“You have this perfect storm. A warm winter plus too much gas supply, both primary and associated, and now, possible delays to new LNG export permits,” said Blake London, a managing partner of private equity fund Formentera Partners.

Commodities

Oil prices rise; supply, demand concerns in focus for 2025

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Investing.com– Oil prices rose Tuesday, but stuck to a tight trading range as traders remained uncertain over a potential supply glut and softening demand in the coming year.

At 05:55 ET (10:55 GMT),  rose 0.8% to $72.86 a barrel, and rose 0.8% to $69.78 a barrel. 

Trading volumes were thin ahead of the Christmas holiday, while strength in the dollar also weighed on oil prices after the Federal Reserve signaled a slower pace of rate cuts in 2025. 

Oil nurses losses in 2024 as demand jitters weigh 

and WTI prices were down about 5% so far in 2024, with persistent concerns over slowing demand in China being a key point of pressure.

Chinese oil imports steadily dropped this year as the world’s largest oil importer struggled with slowing economic growth. While the country did outline plans to ramp up fiscal spending and stimulus measures in the coming year, markets were still holding out for more clarity on the planned measures. 

Increased electric vehicle adoption in China also undermined fuel demand in the country. 

Both the OPEC and the IEA have forecast slower demand growth in 2025 due to slowing demand in China. The country is also expected to face increased economic headwinds from a renewed trade war with the U.S. under Donald Trump. 

Supply uncertainty spurs caution; US inventory data awaited 

Oil markets were on edge over a potential supply glut in 2025. While the OPEC recently agreed to extend its ongoing supply cuts until at least mid-2025, production elsewhere could potentially increase.

US oil production remained close to record highs, and could potentially increase in the coming year, especially as Trump vowed to ramp up domestic energy production. 

US inventory data, from the , is due later Tuesday and is set to offer more cues on oil production and supply. 

(Peter Nurse contributed to this article.)

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Commodities

Gold prices edge up, remains pressured by strong dollar after hawkish Fed

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Investing.com– Gold prices edged higher in Asian trade on Tuesday, extending their tepid performance as investors still remained cautious with the rising dollar following the U.S. Federal Reserve’s hawkish tilt.

Traders also refrained from placing large bets ahead of a shortened trading week due to the Christmas holiday.

inched up 0.2% to $2,617.22 per ounce, while expiring in February ticked up 0.1% to $2,631.89 an ounce by 21:46 ET (02:46 GMT). 

The yellow metal had inched up 0.3% on Monday, after losing more than 1% in the previous week, reflecting uncertainty about the metal’s outlook.

Bullion under pressure on Fed rate outlook

Gold prices had hit a one-month low on Wednesday, as the Fed meeting indicated that rates will remain higher for a longer period after Wednesday’s cut. 

Prices have failed to fully recover from it and have seen subdued moves as investors still assessed the implications of the Fed’s rate outlook. 

Higher interest rates put downward pressure on gold as, as the opportunity cost of holding gold increases, making it more attractive compared to interest-bearing assets like bonds.

Traders are now expecting only two quarter-point reductions in 2025 amid continued economic resilience and still-elevated inflation. This compares to expectations of four rate cuts before the Fed meeting.

Strong dollar creates downward pressure on gold, other metals

The Fed’s hawkish shift provided renewed strength to the U.S. dollar, as higher interest rates make the greenback more attractive due to increased returns on dollar-denominated assets.

The  rose 0.1% in Asia hours on Tuesday and hovered near a two-year high it reached last week.

A stronger dollar often weighs on gold prices as it makes the yellow metal more expensive for buyers using other currencies.

Other precious metals were largely muted. inched up 0.1% to $951.90 an ounce, while gained 0.2% to $30.062 an ounce.

Copper subdued on strong dollar, seasonal factors

Among industrial metals, copper prices were subdued and moved within tight ranges on Tuesday as a strong greenback weighed on the red metal.

Analysts attributed the weakness in copper to seasonal sluggishness as industrial production and construction projects often slow down as businesses and projects prepare for year-end closures and holidays.

Benchmark on the London Metal Exchange were largely unchanged at $8,940.50 a ton, while one-month were also steady at $4.0905 a pound.

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Commodities

Oil prices ease on surplus concerns, dollar strength

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By Nicole Jao

NEW YORK (Reuters) -Oil prices edged lower on Monday in thin trade ahead of the Christmas holiday on concerns about a supply surplus next year and a strengthened dollar.

futures settled down 31 cents, or 0.43%, at $72.63 a barrel. U.S. West Texas Intermediate crude futures fell 22 cents, or 0.32%, to $69.24 a barrel.

Macquarie analysts projected a growing supply surplus for next year, which will hold Brent prices to an average of $70.50 a barrel, down from this year’s average of $79.64, they said in a December report.

Concerns about European supply eased on reports the Druzhba pipeline, which sends Russian and Kazakh oil to Hungary, Slovakia, the Czech Republic and Germany, has restarted after halting on Thursday due to technical problems at a Russian pumping station.

The U.S. dollar was hovering around two-year highs on Monday morning, after hitting that milestone on Friday.

“With the U.S. dollar changing from weaker to stronger, oil prices have given up earlier gains,” UBS analyst Giovanni Staunovo said.

A stronger dollar makes oil more expensive for holders of other currencies.

On Friday, U.S. data that showed cooling inflation helped alleviate concerns after the Federal Reserve interest rate cut last week.

“With the Fed sending mixed signals and some of these economic data points not being all that robust, the market is listless,” said John Kilduff, partner at Again Capital in New York.

Brent futures fell by around 2.1% last week, while WTI futures lost 2.6%, on concerns about global economic growth and oil demand after the U.S. central bank signalled caution over further easing of monetary policy.

Research from Asia’s top refiner Sinopec (OTC:) pointing to China’s oil consumption peaking in 2027 also weighed on prices.

© Reuters. FILE PHOTO: The sun sets behind a crude oil pump jack on a drill pad in the Permian Basin in Loving County, Texas, U.S. November 24, 2019. REUTERS/Angus Mordant//File Photo

U.S. President-elect Donald Trump on Friday urged the European Union to increase U.S. oil and gas imports or face tariffs on the bloc’s exports.

Trump also threatened to reassert U.S. control over the Panama Canal on Sunday, accusing Panama of charging excessive rates to use the Central American passage and drawing a sharp rebuke from Panamanian President Jose Raul Mulino.

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