Average gas prices in the US were at a three-year low last year and the start of 2020 has seen them push even lower, but record production may be about to tail off.
Depressed prices are due to an uncharacteristically warm start to winter combined with record production.
But a fall in the number of drilling rigs allocated to gas production, as well as a pick up in exports and overall use in the US power sector, indicates the current glut may not last into 2020.
There are 10-odd ASX small caps that include US gas exploration or production in their portfolio.
Stockhead located nine small caps that say they have some level of activity in US gas exploration or production while one, LNG (ASX:LNG), provides liquefaction infrastructure.
| Code | Company | Price (Jan 13) | 1-year return % | Market Cap |
|---|---|---|---|---|
| EEG | EMPIRE ENERGY GROUP LTD | $0.415 | 219 | $109.2M |
| XST | XSTATE RESOURCES LTD | $0.004 | 100 | $5.7M |
| HCD | HYDROCARBON DYNAMICS LTD | $0.066 | 50 | $18.6M |
| XCD | XCD ENERGY LTD | $0.013 | 30 | $9.1M |
| BYE | BYRON ENERGY LTD | $0.290 | 29 | $234.6M |
| TMK | TAMASKA OIL & GAS LTD | $0.005 | 25 | $4.0M |
| ABL | ABILENE OIL AND GAS LTD | $0.003 | 0 | $1.2M |
| OEL | OTTO ENERGY LTD | $0.037 | -17 | $91.0M |
| PCL | PANCONTINENTAL OIL & GAS NL | $0.002 | -25 | $8.1M |
| LNG | LIQUEFIED NATURAL GAS LTD | $0.195 | -64 | $112.4M |
Last week the US Energy Information Administration (EIA) said spot prices for the country’s benchmark, the Henry Hub price in Louisiana, averaged $US2.57 ($3.72) per million British Thermal Units (mmBTU).
That was $US0.60 lower than in 2018 and the lowest average price since 2016, despite low prices spurring higher use in the power sector and higher exports.
One hub, Waha in Texas, saw prices under $US1/mmBTU for six months in a row.
Reuters’ data show those prices have fallen even further in the last few weeks thanks to an abnormally warm winter. Henry Hub futures prices for gas delivered in March 2020 hit $US2.09/mmBTU, the lowest point since 2008.
Financial market data from the company shows power demand in the US was down by 6 per cent, yet gas production was up 10 per cent year-on-year.
America is making too much gas
The reason for the low prices is massive production.
The EIA says production grew by 7.5 billion cubic feet per day, or 9 per cent, in the first 10 months of the year even after record growth in 2018.
New pipelines opened in 2019, allowing gas in the Permian and Appalachian areas to head to power plants, to the new LNG hubs in Louisiana, Georgia and Texas for export, and for export to Mexico by pipeline.
LNG exports averaged 5 billion cubic feet per day in the first 10 months of the year, up 69 per cent on 2018, and exports to Mexico remained about that level too.
There could be some light in the darkness for E&P companies however.
Reuters data shows the numbers of rigs drilling for gas in the US has fallen by 39 per cent since the start of 2019, indicating that a slowdown in supply is on the cards for 2020.