Chesapeake’s CEO sounded the alarm after natural gas prices fell 50% in a month

  • Natural gas prices have fallen 50% in less than a month as an unusually warm winter hit both the US and Europe.
  • Chesapeake Energy CEO Nick Dell’Osso wants to avoid a repeat of the 2014 shale slump by limiting supply growth.
  • “We think the industry should recognize that and it could reduce growth in the near term,” Dell’Oso said.

Natural gas prices have fallen over the past month as an unseasonably warm winter hit both the US and Europe, reducing demand for the heating source.

That’s why one energy executive is sounding the alarm, advocating for action the natural gas industry needs to take to avoid the same fate oil companies faced during the multi-year shale crash that began in late 2014.

The decline in natural gas prices has been rapid, with a 51% drop in just under a month.

US natural gas prices have fallen from just under $7.00 per million British thermal units in mid-December to $3.22 today. The decline is even worse than the peak in mid-August, with prices down 68% from $10.03 per million British thermal units. Benchmark European natural gas futures have also fallen 50% over the past month.

Natural gas prices soared in 2022 as Europe raced to replenish reserves ahead of winter, while Russia cut supplies amid rising tensions over Moscow’s war on Ukraine. But with homeowners using less gas so far this season, demand has fallen and supply has risen, creating a powerful catalyst for lower prices.

To stem further declines, Chesapeake Energy CEO Nick Dell’Oso is urging his industry to slow its growth and reduce gas inventories to help balance supply and demand.

He said natural gas prices are sending a “very clear signal” to the industry that production needs to fall. “Gas supply growth is not needed in the short term. We think the industry should recognize that and may reduce growth in the near term,” Del’Oso said in an interview on Wednesday, according to Bloomberg.

Chesapeake may now be close to launching a share buyback, Bank of America analyst Doug Leggate said in a note, echoing tactics used after the shale debacle.

The company last week sold some shale operations in South Texas for $1.4 billion to Wildfire Energy and will use the proceeds to clean up its balance sheet. BofA thinks paying down Chesapeake’s debt will help generate higher returns for shareholders.

If so, Dell’Osso is taking a page from the playbook that big oil has used to slow production growth.

As fracking fueled America’s shale boom in the mid-2000s, more and more energy companies raced to snap up shale assets and pump as much oil as possible. But after OPEC refused to cut its own output in 2014 to offset a surge in shale growth, a flood of new supply sent oil prices into a six-year slump that has hurt corporate profits.

Now, big oil is less focused on growing supply and more on growing profits — and instead of reinvesting most of its profits into producing more oil, it’s paying record dividends to shareholders and launching stock buybacks.

A drop in supply would help Chesapeake and the rest of its industry better manage the recent drop in natural gas prices. And to do that, their priorities must shift from production growth to profit. A cold would also help.

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