Posts tagged “natural gas prices”
Chemicals and Fertilizer Industries
In last week’s post Who Wins from Rising Natural Gas Prices?, I discussed the sectors that would benefit from rising natural gas prices. This week, let’s talk about the potential losers.
Natural gas is an important feedstock for the chemicals and fertilizer industries, so higher prices could pressure those sectors. Oil companies with significant chemical operations could also see this business segment take a hit, but based on ExxonMobil’s (NYSE: XOM) advocacy of liquified natural gas (LNG) exports, it clearly believes the net effect of rising natural gas prices on the company would be positive.
Dow Chemical (NYSE: DOW), on the other hand, has come out strongly against LNG exports because of the potential cost to its own business and that of other heavy users of natural gas. Ironically, last week the Department of Energy granted a permit to a facility called Freeport LNG — in which Dow owns a 15% stake. Dow’s answer to that is that they invested in the facility when it was supposed to be an LNG import facility.
But the risks to the chemicals and fertilizer industries are well-known. What isn’t as well-known is the risk from higher natural gas prices to the biofuels sector. This may be counterintuitive, since renewables like wind and solar power become more competitive as natural gas prices increase. CONTINUE»
Over the past two years the spot price of natural gas fell from nearly $5 per million British thermal units (MMBtu) in June 2011 to less than $2 per MMBtu in April 2012, before beginning a steady climb back to the current level of about $4 per MMBtu. Prices have been supported by resilient demand as well as diminishing supply from some of the more mature shale formations and the depleted wells offshore.
Stronger natural gas prices are good news for some and bad news for others. Natural gas producers like Chesapeake Energy Corporation (NYSE:CHK) were hit especially hard as gas prices fell. Between June 2011 and April 2012, CHK’s share price declined 25 percent. But over the past 12 months, CHK has rallied 36 percent as gas prices recovered. Since Chesapeake is the nation’s second-largest producer of natural gas, it’s not surprising that its shares track the price of the commodity. The company isn’t diversified, so it is nearly a pure play on natural gas.
Normally when I list the Top 10 stories of the year, I close the post by making predictions for the upcoming year. For 2012, my predictions were:
- President Obama will easily win reelection, which means that energy policies will likely continue along the current trajectory.
- The Keystone Pipeline project will be approved (although that decision may still slide into 2013).
- Natural gas prices will remain low, averaging below $5/MMBTU for the year.
- Oil prices — both West Texas Intermediate and Brent — will average above $100/barrel in 2012.
- We will look back on the fact that Newt Gingrich was once the leading Republican contender for president and have a good laugh about it.
Those predictions were correct for the most part. The first and third were correct, I believe the second will ultimately be correct, the fourth was mixed (Brent averaged above $100 and WTI averaged about $94), and the 5th just depends on one’s personal opinion. In my opinion, it is correct.
However, when I listed the Top 10 Energy Stories of 2012 — as voted upon by readers — I failed to list my predictions for 2013. So here they are:
- Brent and WTI crude prices will both average less in 2013 than in 2012.
- The Brent-WTI price differential — which has widened substantially in the past two years — will narrow in 2013.
- The average annual price of natural gas — as measured by the Henry Hub Gulf Coast Natural Gas Spot Price — will be higher than in 2012.
- The Obama Administration will approve the northern leg of the Keystone XL pipeline.
- US oil production will continue to grow (but at a slower pace than in 2012), reaching the highest level since 1995.