A funny thing began happening in natural gas markets late this summer.
There was less of the gas that heats homes and fuels stoves in storage week by week. Though the market noticed this phenomenon, it didn’t really react. There is so much gas production growth in the U.S. that a knee jerk to low storage didn’t really kick in until recently, when extensive cold weather hit like a wall.
Prices have shot up. The national benchmark price, Henry Hub, now sits at $4.61 per million British thermal unit, the highest it’s been since a single day spike in January, while Opal, a trading hub in southwest Wyoming that serves the California market, climbed to near $7 Monday.
Commodity prices are often the talk of Wyoming, as they make waves in nearly every sector of the economy. Oil’s rise, and recent fall, has impacted discussions from jobs to revenue ahead of a new governor taking office. But while oil prices could make or break Wyoming’s budget in the coming years, gas price spikes are likely just seasonal, experts say.
The guiding purpose of the gas market is that you want to have enough stored underground to ensure people don’t freeze during the winter, said Eric Fell, senior natural gas analyst for Genscape, a consulting firm.
That didn’t happen this year.
“Now the market is starting to freak out, because we didn’t get enough gas in the ground,” he said.
The amount of gas in storage was the lowest it’s been heading into winter since 2005, he said.
That alone didn’t cause a reaction because there is just so much gas being produced. But weather had thrown demand in flux, from one of the coldest Aprils in 30 years to an October that started hot and ended cold, he said.
Add to that increased exports to Mexico and growing liquefied natural gas exports from ports, and the market arrived at where it is today, re-injecting the risk value into the price.
“It’s very unlikely that we will run out,” Fell said. “The question is how high do we need to price to prevent running out.”
Proved reserves of natural gas — the amount of gas that can be developed economically with existing technologies — recently hit a record high in the country, climbing by 36 percent from 2016 to 2017, according to the Energy Information Administration.
But while gas production, and potential, is seemingly omnipresent nationally, Wyoming’s natural gas production has been falling for some time.
The state economists who forecast Wyoming’s revenue each year to guide budgeting noted in an October report that gas production has fallen for 8 consecutive years, some years dropping by as much as 9 percent.
Though the price of natural gas has remained depressed, that trend of decline reversed in early 2018, largely due to gas being produced from increasing oil production. The economists with the state’s Consensus Revenue Estimating Group in turn changed their outlook for gas production and forecast a 3 percent increase next year.
Their price forecast, however, dropped from $3.00 to $2.90 per mcf for 2019.
The thing to remember about gas is that there is a lot of it across the country, noted Jim Robinson, principal economist at the state’s Economic Analysis Division.
You don’t even have to drill a gas well to get gas. It comes as a byproduct of oil development and in places where there are pipelines to capture and sell it, that’s more gas on the market.
“We are not resource short in this county when it comes to natural gas,” he said.
For higher gas prices to move the needle for Wyoming revenue — on a statewide basis — the price would have to be sustained over a long period of time, Robinson said.
“Right now, it’s a very, very short-term situation,” he said.
Gas production was once an incredible enterprise in Wyoming, from the discoveries of Jonah and the Pinedale Anticline to the coal bed methane boom that drove millions into counties lucky enough to possess those resources. High prices a decade ago during coal bed methane’s height lifted places like Johnson, Campbell and Sheridan counties. Prices make dramatic differences in county fortunes.
In Fremont County, which produced about 5 percent of the state’s gas and nearly 9 percent of the state’s oil last year, the county’s total value hovered near $1 billion when oil prices were high in 2014 but dropped to about $631 million in 2017 after commodities busted, said Fremont County Assessor Tara Berg.
When oil and gas are doing well, revenue from those industries swells to a significant portion of county budgets. For Fremont that portion has at times been as high as 70 percent.
When oil or gas prices fall and it’s more sensible to leave the minerals in the ground than produce them, the county-level losses can be significant, Berg said.
“It’s just a huge trickle-down effect,” she said. “Surely, when you start to see those increases, it does make you (think) ‘Well, at least they are not dropping more.’”
The price bump for gas this winter is certainly something counties like Fremont are watching, but how long the high tide lasts depends largely on weather.
A mild streak can send the price back down, said Fell of Genscape.
“Every day matters,” he said.