Why Are Natural Gas Producers Expanding Production So Aggressively?
While the
price of natural gas is in the dumps, US producers c
ontinue to expand production. Why? Oh I think it's pretty obvious. And
it's nothing to do with the magical V shape recovery in the U.S.
As I often say as people mix natural gas and crude together as if its the same thing (hey "it's energy") - unlike crude which can benefit from economic growth in Asia, natural gas is largely a domestic commodity despite efforts to make it more transportable. (
Mar 24, 2009: Will Liquified Natural Gas Turn this Commodity Global?) In fact the divergence between the price of oil and natural gas tells you all you need to know about the reflective economies of the globe versus US. (again using ETFs that have a LOT of issues.
Global economy - huge drop in 2008 and then stabilization as weaker parts of the world offset stronger for the better part of 10 months
US economy - weak, weak, weak, weak, stabilizing the past 4 months at ... weak. No real bounce in the real economy even with constant feeding of money, taking from future generations.
It really is as simple as that when you break it down in the language of commodities.
But as
this Bloomberg report says - the natural gas producers continue to churn out product: Gas Glut May Grow as XTO Energy (
), Devon Energy (
) Wells Prove Prolific
- The largest U.S. natural-gas producers may be doing too well at the wellhead for their own good, pumping so much of the heating and power-plant fuel that prices won’t soon recover from last year’s market collapse.
- XTO Energy and Devon Energy, two of the five largest producers of U.S. gas, yesterday reported record output and smaller declines in earnings than analysts estimated. Anadarko Petroleum Corp., London-based BP Plc and Chesapeake Energy. previously reported second-quarter output gains that helped them beat estimates.
- Even as they lament a gas glut, the companies have been reluctant to let revenue and profits fall further in the short term by being the first to curtail output.
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