U.S. Gas Drillers Are About To Start Cutting Output | OilPrice.com

Investment Analysis Clubs Destiny Solutions Corporation
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:pushpin: Several U.S. gas drillers are having to sell their gas below break-even price.

:pushpin: Reuters: Last September, just about 36 percent of 2023 gas production in the United States was hedged.

:pushpin: Like U.S. producers, many European gas buyers did not hedge by inking forward contracts with other buyers.

Some U.S. natural gas producers that didn’t hedge their output this year are having to sell their gas at prices that are below their breakeven price. At less than $2.50 per million British thermal units, natural gas prices have fallen more than threefold over the last six months with no immediate prospect of a reversal. And supply is about to tighten.

In an article published earlier this week, Reuters cited industry insiders and analysts as warning that the gas price drop from more than $9 per mmBtu in August last year to $2.405 at the close of trade yesterday will affect companies’ first-quarter earnings and outlook. It will also affect their drilling plans. Because most of them didn’t hedge future output.

Hedging is often popular with oil and gas companies as a means of locking in a certain price for future supply. However, it sometimes falls out of favor because of the risk of missing out on even higher prices. This might well be what happened with U.S. gas.

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It’s a scene few might have expected following Russia’s invasion of Ukraine nearly a year ago. The fallout of war sent gas prices at one point last summer to a record above €300 MWh, sparking fears of blackouts. In retaliation for sanctions imposed by the bloc and other Western allies over the invasion, Russia has slashed its natural gas supplies for Europe to a trickle.

While months of a brutal war that shows no sign of ending soon have made for a miserable winter in Ukraine, fears of Europeans freezing in their homes have dissipated. That’s thanks to milder temps and EU efforts to cut back on usage that have aided in ramping up stockpiles.

Germany, a country that has historically been heavily dependent on Russian supplies, rapidly built several floating liquid natural gas (LNG) terminals in recent months to help source supplies from elsewhere, such as the U.S. and Gulf countries.

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