On Tuesday, for the first time in three and a half years, the price of natural gas from the US fell to under $2 per mBtu (million British thermal units). The base price of US natural gas has now fallen 15% in the last three quarters.
Reasons for this fall are thought to be factors such as warmer weather and a record level of stocks. Normally, the colder months of the year see a rise in demand for the natural gas, which means that the gas in storage begins to get used more and more. However, the National Weather Service released forecasts, which predict that temperatures will remain higher than normal well into the month of November. This means that people and businesses need less gas than normal to power their heating.
Natural Gas Storage at “All Time High”
As a result of this there is now a much higher volume of natural gas in storage than there ever normally this at this time of the year. In fact the US Energy Information Administration has predicted that there will be a total sum of 3.956tn cubic feet of gas in storage by the weekend. This will represent an all time record for the level of gas being stored at this point in the year.
Carsten Fritsch, analyst at Commerzbank, has stated:
“The prospect of a mild start to the winter coupled with plentiful stocks is putting further pressure on the US gas price”
The last time that prices for US natural gas were this low was back in April 2012. The cause of that price drop was similarly caused by a warm winter impacting demand.
This means that there are likely to be difficult times ahead for US energy producers, even though US consumers will already be benefiting from lower oil prices.
“The natural gas market is under heavy selling pressure, with updated temperature forecasts doing nothing to insert a floor under the nearby November futures ahead of Wednesday’s contract expiration.”
ExxonMobil Down 11%
Chesapeake Energy are one of the biggest producers of natural gas in the US and dropped 65% in 2015 alone. The largest natural gas supplier in the US, ExxonMobil, is down 11%, probably shield slightly by its international operations.
Following this news of plummeting natural gas costs, oil giant BP have announced a sharp drop in profits and revenue this quarter, compared to the same quarter last year.
According to the replacement costs measure (a standardised measure used in the industry that takes oil costs into account), last year they made $2.38 billion from July to September; this year they made only $1.23 billion. Total revenue showed a similar story – falling from $94.8 to $45.9 billion.
BP Announce Fall In Profits
Bob Dudley, BP’s chief executive, said that “BP has successfully adapted to changing circumstances many time in its history and, in a hard time of the entire industry, I believe we will once again successfully take on today’s challenges.”
“We are already in action”, he went on, “with a quality portfolio and clear plans for the future. I am confident BP will continue to deliver value into the years and decades ahead.”