Natural Gas Prices Drop amid Production Growth

On Wednesday, natural gas fell due to growing production from oil formations through 2050, having an ongoing long-term trend.

Natural gas futures for May delivery declined by 0.27% to $2.22 per million British thermal units on April 12.

In 2010, production hit 1.30 trillion cubic feet (Tcf), responsible for 6.00% of domestic supply. By 2022, outputs will increase to 5.60 Tcf or over 15.00% of the domestic natural gas supply.

The top oil-producing region in the US, the Permian Basin, found in the Southwest, produces the most volumes. 

According to the AEO2023 Reference case, Southwest inventories will keep growing. It would jump from 4.40 Tcf in 2025 to 4.90 Tcf in 2050. The Permian Basin accounts for about one-third of natural gas in the country.

Additionally, this reference case serves as a baseline or benchmark, which only considers laws and regulations. These were adopted in mid-November 2022.

Furthermore, several unconventional oil wells are starting to age, meaning they are likely to produce higher ratios. 

Based on the AEO2023 High Oil Price case, natural gas would peak at 13.60 Tcf in 2035, equating to 30.00% of the total domestic supply.

On the other hand, in its Low Oil Price case, supplies will reduce to 4.20 Tcf by 2050.

US Headwinds Eased by Low Natural Gas Prices

According to analysts, lower natural gas prices should temporarily lift utilities’ need to absorb higher generation costs. This could ease the burden of expensive customer bills, a significant risk for the sector.

Also, lower costs enable utilities to recapture under-recovered fuel balances. As a result, the rate of case activities will be high this year, assuming favorable outcomes for the sector. 

Moreover, lower natural gas prices offer some cover for raising base rates. However, inflationary consumer issues and recessionary conditions would keep posing service risks. This is to achieve constructive regulatory outcomes.

Meanwhile, prices could still rise later in the year. Besides, fuel comprises almost 40.00% of electric generation in the US.