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Cold Weather Thaws Natural-Gas Prices

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A CNX Resources natural-gas well in Pennsylvania. CNX said last week that it was reopening the last of the wells it shut in this summer.

A CNX Resources natural-gas well in Pennsylvania. CNX said last week that it was reopening the last of the wells it shut in this summer.

Photo: Ross Mantle for The Wall Street Journal

Winter’s approach and a lot of working from home have lifted natural-gas prices to more than double their summer lows.

More-expensive gas could sting consumers hunkering down for a winter in home officesand virtual classrooms. The U.S. Energy Information Administration estimates that average daily gas consumption will be 5% more this winter than last due to colder temperatures and people burning more than usual to heat and power their homes.

But the surge is rewarding Appalachian producers who idled drilling rigs and choked back wells this summer to hold gas in the ground until prices improved.

Natural gas for December delivery ended Tuesday at $3.06 a million British thermal units, up 6.9% from a year ago. January futures, which are more heavily wagered upon, ended at $3.195 after losing 7.9% this week amid forecasts for a warm spell in the East. This summer, futures fell to $1.48, the lowest price in a quarter-century.

Traders and analysts expect equilibrium in the $3 range, a price adequate to encourage producers to maintain ample supply but not high enough to touch off a drilling bonanza that could swamp the market anew.

“We’re going to need to price above $3 sustained to get inventories where they need to be next summer,” said Ron Ozer, chief investment officer at Statar Capital, a gas-focused hedge fund.

The big risk to $3 gas is a warm winter, like last year.

Uncharacteristically warm weather across the Northern Hemisphere meant that gas-storage facilities from the Netherlands to China brimmed with unburned fuel when the pandemic hit. Economic activity halted and the glut got worse.

Overseas buyers of U.S. shale gas canceled orders for tankers full of liquefied natural gas, or LNG, and unsold cargoes added to the domestic oversupply. When the U.S. locked down in March, demand for transportation fuels such as gasoline and diesel plummeted. Consumption of natural gas fell at factories, restaurants and other businesses, but picked up at power plants and among Americans stuck at home, who cranked air conditioners against the summer heat and ran computers and other household electronics like never before.

The volume of gas delivered to power plants set a monthly record in July, according to the Energy Information Administration. Since March, residential gas consumption has been up 10% year over year, according to EIA data through August.

Winter months are big for residential demand, since about half of U.S. homes are heated by natural gas and another 40% by electricity, which is most commonly generated by burning gas.

Analysts predicted that production would outpace consumption to such an extent that U.S. gas-storage facilities would reach capacity before the winter withdrawal season. Resilient household demand, a resurgence of LNG demand and restraint by the Appalachian drillers who dominate the market prevented an overflow.

The 3.955 trillion cubic feet of gas in storage as of Oct. 23 was 7.9% above average for the past five years. But there is room to spare before stockpiles are drawn down for heating season. Analysts expect EIA data Thursday to show that stockpiles began to be drawn down last week when blustery weather swept over the North.

“We had snow today in Boston,” Jeffrey Hutton, who heads sales for
Cabot Oil & Gas Corp.
, said Friday during a call with investors. “That’s always a good thing in October.”

Cabot was among the Appalachian producers to cut production due to low prices, a new strategy for the companies that spent the past decade drilling without much regard to commodity prices as they raced to stake claim to new shale fields. Investors have rewarded the discipline. Excluding penny stocks and shares of bankrupt companies, five of the six companies that are up this year in a basket of 125 energy stocks tracked by The Wall Street Journal are Appalachian producers.

Cabot—which trails its rivals, with shares down 3.5% in the year to date—dialed back its daily output by about 372 million cubic feet during the last 13 days of September so that it could sell the gas later in the year when prices were higher.

Rival
EQT Corp.
, the country’s largest gas producer, curtailed 25% of its output in May and again took a chunk of production offline in September, which it brought back in phases last month. Its shares are up 36% in 2020, even after the dilutive effect of selling more than $300 million of new shares last week to help fund its planned purchase
Chevron Corp.’s
Appalachian business.

Range Resources Corp.
, up 31% this year, curtailed 210 million cubic feet a day starting in mid-September before reopening the taps late last month.

Executives with
CNX Resources Corp.
said last week that the Pittsburgh company was reopening the last of the wells it shut in this summer.

“We’re going into the winter season with our production going strong,” said Chad Griffith, CNX operations chief.

An abundance of fossil fuels combined with advances in technology to harness wind and solar power has sent energy prices crashing around the world. WSJ explains how it all happened at once. Photo illustration: Carlos Waters/WSJ

Write to Ryan Dezember at ryan.dezember@wsj.com

A Global Asset Management Seoul Korea Magazine

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