Natural gas prices have rebounded to $3.34 per bcfe, but very few natural gas producers can turn a profit at these prices, and those that can are limiting their new investments in additional resources. The old saying is the cure for low prices, is low prices, it causes producers to stop or slow production, and it encourages new sources of demand. Low natural gas has increased demand in three main ways:
- Electricity utilities are switching from aging coal plants to gas as its become cheaper, cleaner, more politically agreeable
- Encouraging discussion and investment in exporting liquified natural gas to exploit the large spread between natural gas prices in the US and elsewhere in the world
- Spurring on the natural gas as a transportation fuel trend, especially for commercial vehicles
These are two good data points to keep bookmarked to keep updated on the supply side:
Ultra Petroleum based out of Texas. Despite the name, Ultra is almost exclusively a producer of natural gas, and pretty much the lowest cost producer. They operate in two main areas, the Pinedale and Jonah fields in Wyoming and then in the Marcellus Shale region of Pennsylvania (through JV partners in the Marcellus). Below are two slides that Ultra provides on a regular basis showing their cost structure compared to peers and their breakeven points for net income and cashflow, clearly they have structured their operations in such as way where they can survive in a low price environment and thrive in a more normalized one.