Natural Gas
Prices: The front-month natural gas futures contract for delivery at the Henry Hub settled at $2.82/million British thermal units (MMBtu) on August 2, a decrease of 5 cents/MMBtu from July 2 (Figure 7). The Henry Hub natural gas spot price averaged $2.84/MMBtu in July, 13 cents/MMBtu lower than in June. Both natural gas futures and spot prices fell despite the much hotter-than-normal weather for July. U.S. cooling degree days (CDD) averaged 11% higher than normal for July, which contributed to higher natural gas demand. EIA estimates that natural gas consumption for power generation reached a record high in July. The high demand likely slowed the pace of inventory injections. Natural gas inventories remained 565 billion cubic feet (Bcf) lower than the five-year (2013–17) average for the week ending July 27.
Production: Despite the record-high natural gas power burn and relatively low natural gas inventory levels, record-high natural gas production growth could be keeping prices from rising. EIA estimates that U.S. dry natural gas production reached 81.8 Bcf per day (Bcf/d) during July 2018, a year-over-year increase of 8.4 Bcf/d (11%) (Figure 8). March through July saw the largest year-on-year increases in natural gas production on record, as drilling productivity improvements contributed to accelerated production growth. EIA expects that natural gas production will continue to increase, reaching 84.3 Bcf/d by the end of 2019.
First-quarter 2018 financials: Cash flow from operations for 22 U.S. publicly traded oil and natural gas producers whose production is at least 60% natural gas rose to $4 billion in the first quarter of 2018, the highest since the third quarter of 2014 (Figure 9). Natural gas production for this group of companies increased by 12% in the first quarter of 2018 from a year earlier, leading to higher upstream revenue and cash flow from operations even though futures prices fell slightly during this period. Throughout 2017 and the first quarter of 2018, natural gas production steadily increased while capital expenditures remained relatively flat. Cash flow from operations exceeded capital expenditures in the first quarter of 2018 for the first time in five years, which may have contributed to these companies’ decisions to spend more on share repurchases than in any quarter in the past five-year period.
