Fed Survey: NatGas Prices Hit Below Profitable Levels for Midcon E&Ps

Natural gas prices have fallen below what Midcontinent producers consider a profitable level, according to the Kansas City Fed’s First Quarter Energy Survey released April 11.

The average price required to make a profit was $3.80/MMBtu, according to the surveyed companies. Answers ranged between $2/MMBtu to just over $6/MMBtu.

The Henry Hub closing price on April 14 was $3.32/MMBtu.

The Kansas City Fed conducted the first-quarter survey over the last two weeks of March, ending two days before President Donald Trump declared tariffs on “Liberation Day,” when the Henry Hub price closed at $4.14/MMBtu.

At the time, producers had mixed outlooks on the markets short term future, according to the comments included in the Fed survey.

“It is great to finally see some strength in the natural gas market,” wrote one producer.

Another wrote, “Lots of uncertainty on tariffs and overall economy.” 

The survey included 34 responses from firms in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri.

Even though natural gas prices have fallen from the White House’s tariff plan, overall production is unlikely to fall in the near term, said an analyst.

“I see natural gas producers as less likely to reduce production today than oil producers,” said Hines Howard, analyst for CBRE Investment Management, in an email to Hart Energy on April 15. “We’ve seen that with the most recent rig count numbers that showed nine oil rigs laid down versus one gas rig added.”

While the falling prices are bad for the overall market, the overall effect will vary according to the basin.

Gas prices are generally related to oil prices, but the connection is not always straightforward. Hines said falling crude prices could provide a boost to producers in gas-focused basins.

“If oil and wet gas production was to slow given weaker oil and NGL prices, I would expect that to benefit dry gas producers,” he said.

In oil-focused basins such as the Permian, gas is a byproduct of crude production. Permian E&Ps will often pay midstream companies to take away their natural gas to continue producing crude.

If the price of crude goes down, however, oil production declines and so does the natural gas associated with its production. In turn, dry basins may see a boost in demand.

“Good for the Haynesville producers, good for Marcellus producers,” Hines said. “I see the demand side of natural gas as solid, with power demand and LNG export ramp-ups making demand for natural gas more secular than in prior periods of economic uncertainty.”