NG1 slumps 17¢ (–7.3%) today on ongoing repairs at storm-hit Freeport LNG
July 15, 2024
Key Observations:
The marginal cost of U.S. natural gas production, inclusive of capital cost, has increased to nearly $3.50 per MMBtu from $3.15 six months ago, according to our analysis of data collected from producers in a Jun 14-28 survey by the Federal Reserve Bank of Kansas City. The data suggest this cost figure for crude oil is now $64 per bbl, nearly the same as a year ago but $3 lower than implied by a Dallas Fed survey earlier this year.
The sampled operators drill in the Tenth District, which spans Kansas, Colorado, Nebraska, Oklahoma, Wyoming, and parts of Missouri and New Mexico. One quarter of the firms report a QoQ decline in drilling/business activity, and nearly forty percent report a YoY decline. Only 11 percent increased activity between the first and second quarters of this year. The survey asks what price would be required for a substantial increase in drilling to occur. Collectively, the group says $91 for WTI crude oil, with responses ranging between $75 and $125. For Henry Hub natural gas, the group’s answer is $4.68, with responses ranging from $3.30 to $8.00.
Prompt NYM gas averaged $2.75 in the sample period. Looking forward, 86% of respondents expect a higher price in six months. No one expects a lower price. We believe that view will prove correct on that time horizon. However, for now NG1 has been pummeled (-60¢) first on competition from coal and now a 1.15 Bcf/d drop in export flow through the storm-hit Freeport terminal.
Source: Federal Reserve Bank of Kansas City, Blacklight Research. Note: 43% of the oil and gas firms in the survey rank “increased regulation” as the greatest threat to their business. “Slowing economic activity” ranks as the greatest risk for 29% of the firms and the second-greatest risk for 47%. A quarter of the sample rank “OPEC production decisions” as their greatest risk. “Supply chain issues”, “labor constraints”, and “financial capital availability” are not stressors at present.
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