Energy executives in the Rockies and Midcontinent have adopted a more bullish outlook on natural gas prices since earlier in the year, according to the Federal Reserve Bank of Kansas City.
The Kansas City Fed, as it is better known, publishes a quarterly survey of oil and gas executives in the Tenth Federal Reserve District to gauge current and expected activity levels in the oil and gas patch, as well as commodity price expectations. The Tenth District includes Colorado, Kansas, Nebraska, Oklahoma and Wyoming, along with 43 counties in western Missouri and 14 counties in northern New Mexico.
The second quarter 2024 edition of the survey asked executives in the district where they expect the Henry Hub natural gas price to be in six months, one year, two years and five years. Respondents on average said $3.00/MMBtu, $3.10, $3.45 and $3.86, respectively.
This compares to predictions of $2.16, $2.71, $3.01 and $3.58 in the 1Q2024 survey.
The projections are in-line with the U.S. Energy Information Administration’s (EIA) latest Short-Term Energy Outlook. EIA researchers forecast Henry Hub prices would average $2.90 during the final six months of 2024, up 80.0 cents from estimates given during the first half of the year.
NGI’s Henry Hub forward fixed price for Winter 2024/25 averaged $3.296 on Friday, while NGI’s daily Henry Hub spot price averaged $2.150.
Despite the strengthened pricing outlook, survey participants expressed concern about the gas market, which remains in a slump relative to recent years. “Gas prices in the Rockies are so low, we are shutting in production,” one respondent was quoted as saying.
“Natural gas is a small part of our business, but even so we are going to reduce production due to historically low prices,” said another. “Oil prices seem to have a bottom and reside at a comfortable level.”
In order for natural gas drilling to be profitable in the areas where they operate, respondents on average said the Henry Hub price would need to reach $3.47. For a substantial increase in drilling to occur, the price would need to hit $4.68.
Drilling and business activity in the district, meanwhile, “posted a decline for the sixth consecutive quarter” in the second quarter of 2024, “but is expected to rebound in coming months along with natural gas prices,” said the Kansas City Fed’s Chad Wilkerson, senior vice president. “Employment was flat this quarter, and capital expenditures continued to decline from this time last year.”
Looking ahead, liquefied natural gas export capacity “will increase as new plants are commissioned,” said one executive. “This should stabilize the market price swings to a degree.”
Other executives expressed optimistic sentiments as well. “The MidCon is less distressed than any time in the past six years,” said one participant. “We are seeing more competition move here” from the Permian Basin.
Another said that, “We are now fully staffed and can get all workover rigs running. This allows us to attack the easier and smaller projects that bear low hanging fruit.”
Asked to name the risk for their business over the next year, 43% of firms ranked increased regulation, while 29% said slowing economic activity. Another 25% said production decisions by OPEC is the greatest risk.
