Natural gas exchange traded funds (ETFs) took a hit yesterday after the supply glut that has pressured prices all year showed few signs of easing. Can it be called a bottom?
It’s easy to question the true direction of natural gas. After all, prices have been sinking for much of this year. By August, says Energy and Capital, they were down to $4. In recent weeks, they’ve come back about 20%, but the supply report isn’t doing anyone any favors.
A few reasons why prices might stay low for some time inclue:
- A jump in shale gas development has increased resources by roughly 50% in the last decade
- The EIA forecasts that shale gas will make up 25% of U.S. natural gas production by 2035
- The number of wells has surged almost 60% in the last 10 years
- We’re not consuming what’s produced; the United States produces about 24 trillion cubic feet a year, but last year, we consumed 23 trillion cubic feet
The natural gas industry, however, isn’t as bearish in the long-term.
Take Chevron (NYSE: CVX), for example. Thomas Kaplan for DealBook reports that the energy giant Chevron has set its sight on natural gas exploration by acquiring Atlas Energy for $3.2 billion. The deal gives Chevron a foothold in the Marcellus Shale, a region in the Eastern states. [Cool Weather Could Heat Up Natural Gas ETFs.]