Natural Gas Commentary - 1/20/2023
With Dutch TTF trading into the mid-50s earlier this week before prices recovered to €66.50/MWh on Friday, U.S. gas exporters don’t see the type of Henry Hub prices they’d like to see. As Chesapeake CEO, Nick Dell’Osso, warned his peers this week, the industry needs to curb its enthusiasm for production increases before export capacity is ready. Looking at the cash flow statement of Range Resources, cash used for ‘additions to natural gas properties’ increased from $311m in the first 9 months of 2021 to $351m in 2022 (2021 full year $393m). Compared to RRC’s $405m in 2020 and $687m in 2019, however, the natural gas operator does appear to be a disciplined allocator of resources. Capital expenditures of EQT increased from ~$707m in the first 9 months of 2021 to $1.05bn over the same period in 2022. Again, comparatively to pre-2020, these are still subdued spending numbers. Both RRC and EQT benefit from tremendous cost efficiencies and volume growth in the Appalachian basin (Marcellus region.) Overall production volume from Appalachia was down -2.78% Y/Y in December but is expected to accelerate to +4% in January and +5% in February. Also a leader in overall production growth, the Permian is expected to increase natural gas production by 14% Y/Y in January and 15% in February. Overall, month/month production increases are running at ~0.5% in recent months with Y/Y expected at +10% in the first two months of the year. Turning to technicals, managed money is -87,278 net short, the most short managed money has been since early 2020.