Natural gas prices drop below $2 for first time in a decade

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It's time to party like its 2002 if you're a consumer of natural gas , as the fossil fuel dropped below $2 for the first time in a decade.

At the end of Wednesday, April 12, the price was at $1.984 per thousand cubic feet, reports The Associated Press . This is a 59 percent drop from the $4.85 price natural gas enjoyed last summer.

The price of the hydrocarbon has been pushed down by a sharp increase in production in the U.S. over the past few years. This is in large part attributable to the hydraulic fracturing - or fracking - boom, which has pushed America past Russia to claim the title of the world's leading natural gas producer, despite having reserves only 16.25 percent the size of the vast European-Asian nation, according to the U.S. Energy Information Administration .

This glut in supply - American storage facilities are reportedly holding 60 percent more natural gas than is typical- combined with the very mild winter pushed the price down. This isn't only good for consumers but for manufacturers as their energy expenditures will drop.

"If you're a consumer, this is great news," petroleum analyst Stephen Schork told the AP. "This could spark a real rebirth of American manufacturing."

However, this isn't such great news for the companies that are producing the natural gas.

Chesapeake Energy Corporation ( CHK ) reached a low of about $20.05 per share late on Wednesday after being close to $22 early on Tuesday. Canada-based Encana Corporation ( ECA ) hit a low of about $17.95 per share on Wednesday, down from a peak of $18.68 on Tuesday. Apache Corporation ( APA ) was as low as $92.76, a drop of nearly $2 from the $94.74 high earlier in the day.

Apache is looking to turn the table and take advantage of these low natural gas prices by converting a rig to run on liquefied natural gas ( LNG ), reports Reuters .

"What we need to do is increase the amount of natural gas demand in this country," Apache CEO Steve Farris told the news source. "From an economic standpoint, it's a no brainer."

Encana for its part is reportedly in the process of converting some of its more than 40 rigs to run on gas ; 15 of them already do.

The future of natural gas in the U.S. may depend on expanded exports of LNG. Natural gas is turned into a liquid by cooling it to minus 256 degrees Fahrenheit. This liquid is just 1/600th the size of natural gas, making its transport much more economical.

Prices for natural gas in Japan - which is far and away the largest importer of LNG in the world - have been around $15 per 1,000 cubic feet, making it an attractive potential market for U.S. LNG producers.

However, liquefying natural gas and sending it overseas is not exactly easy. A number of groups have spoken out against exporting the fossil fuel. For instance, environmentalists believe it would encourage further fracking operations, which they view as harmful to the environment.

More practically, the investment in creating a facility that can send LNG overseas is massive. According to Unit Economics , a full LNG export supply chain - which includes production, pipelines, a liquefaction facility and port - can cost $3 billion per million annual tons of natural gas. Due to these costs, as well as regulatory factors, creating an LNG export terminal takes time.

Still, companies in both the U.S. and Canada have been attempting to move forward with various LNG projects as many analysts believe natural gas prices will only dip further this summer and may not see a rebound until next year, according to The Wall Street Journal .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: News Headlines , Commodities , International , US Markets

Referenced Stocks: LNG

Doug Sweeney


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