Natural-Gas Prices Plunge, and Drillers Dial Back

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Natural-gas prices have dropped more than 65% since mid-December and this week hit their lowest level since 2020’s pandemic lockdown, leading producers to throttle back drilling in a dramatic turn in the market for the heating and power-generation fuel.

Expensive natural gas was a major contributor to inflation over the past two years, pushing up the price of electricity and staying warm as well as manufacturing costs for fertilizer, steel, glass, aluminum, plastic and cardboard.

Now, producers are trying to avoid swamping the market while traders and analysts are calculating how low prices will need to fall to spur the right mix of curtailments and demand to balance the market.

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The Christmastime blizzard and this week’s snowstorm notwithstanding, there hasn’t been much heating demand to draw down supplies this winter. U.S. gas inventories have flipped to an unseasonable surplus after being at a significant deficit to normal levels this summer, when wholesale prices surged to shale-era highs above $9 per million BTUs.

Production normally can’t fulfill demand in winter, so gas is drawn-out of storage facilities to make up for the shortfall. During an especially mild stretch at the start of this year, production outstripped demand and the volume of gas in storage rose, the only instance of a January inventory build in weekly Energy Information Administration data going back to the start of 2010.

The market currently is oversupplied by about 5 billion cubic feet a day and without producers choking back output, U.S. inventories would swell beyond storage capacity before next winter, said Ryan Smith, vice president of consulting at energy-data firm East Daley Analytics.

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Demand should climb in the coming weeks as Freeport LNG restarts the Texas export facility that has been down since a June fire. The outage of one of the country’s largest gas export terminals has left a lot of gas in the domestic market that would have been shipped abroad. But big price gains aren’t expected until next year when a batch of new export terminals begin to open, boosting U.S. export capacity by 40%.

“The consensus call is gas is dead until late 2024, early 2025,” Truist Securities analyst Neal Dingmann said. “It’s hard to point to anything different until the large LNG projects start to come in late next year.”

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