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Master Limited Partnerships

Natural Gas: Lower for Longer, But Pockets of Opportunity Exist

By Elliott H. Gue, on Feb. 29, 2016

Although the severe downdraft in crude-oil receives a great deal of attention from investors and in the media, the 12-month calendar strip price of natural gas for delivery at Louisiana’s Henry Hub has plummeted by more than 40 percent over the 12 months.

Robust US natural-gas production has combined with an unusually warm winter to swell inventories to 27.8 percent above the five-year average and send the price of this commodity from depressed to ultra-depressed levels.

(Click graph to enlarge.)
US Natgas in Storage

At the end of 2015, the volume of working gas in storage exceeded the level at the end of 2012, another no-show winter that weighed heavily on the thermal fuel’s price.

Although natural-gas production has declined steadily in the Gulf of Mexico and most onshore regions, surging output from the prolific Marcellus Shale and Utica Shale has offset this weakness in other basins.

A period of ultra-depressed natural-gas prices will help to accelerate this process, with cash-strapped producers cutting their investment in out-of-favor basins, such as the Barnett Shale in North Texas, the Fayetteville Shale in Arkansas, the Haynesville Shale in Louisiana and the Piceance Basin in the Rockies. Expect decline rates to pick up in these regions.


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