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There is so much natural gas in West Texas that prices turned negative in March. Elsewhere in the United States, a combination of warm winter weather and higher production from gas wells has filled gas inventories beyond long-term averages.
The good news is that, historically, very high storage levels have provided a contrarian buy signal. Sharp increases in US gas supply were followed by price rebounds in 2012, 2016 and 2020. This may be another one of those times.
As of late March, about 2.3 trillion cubic feet of gas was stored, usually in empty underground tanks. This is about 40 percent higher than the 10-year average. As spring approaches in the United States, demand tends to disappear. But even adjusting this for the seasonal chart, supply has only risen to the same level as it was in March once in the past decade.
Three regions produce 61 percent of the nation's natural gas: Appalachia, Permian, and Hinesville (mostly east Texas and Louisiana). Together they accounted for almost all of the 4 percent increase to a record high in production last year, according to the U.S. Energy Information Administration. More production, coupled with one of the warmest December-February periods since the 1950s, has led to a sharp decline in record Henry Hub prices. These prices fell to less than $1.60 per million British thermal units in February. This puts gas at the bottom of its three-decade range.
Traders have priced in a fair amount of downside. The commodity's price has recently rebounded slightly from record lows. What is striking is that stocks of US-listed gas-focused exploration and production companies have performed surprisingly well year-to-date. The Lex index of prices of the nine largest gas exploration and production companies has risen by 16 percent since the end of January.
Producers such as CNX Resources, Range Resources and Gulfport may also have benefited from timely gas price hedging. By September last year, the three companies had covered more than half of their 2024 production at prices above $3 per million British thermal units, according to S&P Global Market Intelligence. Their stock prices are all up this year. In fact, among exploration and production companies, only EQT fell, partly because the market disliked its $35 billion acquisition of the pipeline network Equitrans.
The stock market may be sending a signal that the worst is over for natural gas. There may be more to come for E&P investors as well.
alan.livsey@ft.com
