The frackers have broken the natural-gas market.
The price of natural gas typically rises this time of year as temperatures plunge and homeowners dial up their thermostats. Instead, the price of the heating and electricity-generating fuel has dropped to multiyear lows.
On Tuesday, natural-gas futures fell below $2 per million British thermal units to their lowest level in nearly four years, highlighting how a persistent glut has buffeted energy investors and producers. This winter’s mild weather has joined an oversupply of the commodity to push natural-gas prices down to levels not seen since March 2016. On Tuesday, futures fell 5.4% to $1.895 per MMBtu.
The shale boom, spurred by horizontal drilling and hydraulic fracturing techniques, has transformed the U.S. energy industry and flooded the market with oil and natural gas in recent years. The decline in prices has hit shares of energy companies, raising calls for them to curtail production. But few analysts see signs of the glut abating soon: The U.S. Energy Information Administration predicts dry natural-gas production in the U.S. will rise by 2.9% in 2020.
The fall in prices has come faster than analysts and traders had predicted. Colder winter temperatures typically drive up prices as homeowners demand more fuel to heat their houses. Instead, futures have continued falling throughout the winter, underscoring investors’ grim outlook.
The move below $2 per MMBtu adds more pressure to natural-gas producers, whose shares have taken a beating in the past year.
Shares of Pittsburgh-based EQT Corp., the nation’s largest natural-gas producer, have fallen more than 60% in the past 12 months. The company said last week that it was planning to write down the value of its assets by up to $1.8 billion, partly due to low gas prices. In September, the company said it would lay off about a quarter of its employees.
Shares of Gulfport Energy Corp. and Antero Resources Corp. have plummeted around 80% in the past year, while shares of Range Resources Corp. have fallen more than 65%.
On Tuesday, Halliburton Co. said it swung to a loss in 2019 on a decline in revenue that it blamed on diminished drilling onshore in North America, which in turn was due to low commodity prices, especially for gas.
“Gas prices in the U.S. are below break-even levels,” Chief Executive Jeffrey Miller told analysts and investors. Mr. Miller said that he expects a 10% reduction in spending among the oil-field services company’s customers in North America, with the bulk of those cuts coming in gas-producing regions. Halliburton, which is the top provider of hydraulic fracturing and other services that help producers unearth oil and gas, has been idling equipment to match customers’ reduced needs, he said.
Halliburton rival Schlumberger Ltd. said last week that it too was pulling back in North America.
“The market is giving up early,” said Mark Benigno, co-director of energy trading at INTL FCStone. “It’s not waiting until the end of the winter anymore for a full price collapse.”
That latest drop comes after production hit record levels in 2019, according to the EIA. Some investors had hoped a cold winter would help drive down stockpiles and lift prices.
That hasn’t happened. Instead, “it’s been endlessly warm this season,” said Brian Lovern, chief meteorologist at Bespoke Weather Services, adding that December and January are likely to rank among the top five warmest of those two months on record.
Investors were hopeful prices might climb when some weather models predicted a return to cooler temperatures early last week. The EIA also reported Thursday that gas inventories fell by 109 billion cubic feet during the week ended Jan. 10, more than the 93 billion-cubic-foot decrease that analysts and traders surveyed by The Wall Street Journal had predicted.
But in what Mr. Lovern called “one of the biggest 24-hour weather changes you’ll ever see,” weather models quickly changed course, and natural-gas prices settled down 2% on Thursday before falling another 3.6% on Friday.
“At this point, it’s looking pretty grim in terms of getting any weather help this season,” he said.
Hedge funds and other speculative investors are the most bearish they have been on natural-gas prices since the financial crisis of 2008. Wagers that prices would fall outnumbered bullish bets by 269,944 contracts during the week ended Jan. 14, according to the Commodity Futures Trading Commission.
The price decline isn’t just hitting gas to be delivered this winter. Natural-gas futures have plunged well into the next decade along the series of monthly contracts known as the futures curve. The price doesn’t exceed $3 until the contract for gas to be delivered in January 2030.
That is too low for most producers to stay in business and shouldn’t last long, said Jen Snyder, director at industry consulting firm RS Energy Group.
“Given what we’re seeing in activity and the investment landscape, the forward curve is too low,” Ms. Snyder said. “We’re not exactly sure when, but the forward curve will have to reset to maintain supply.”