This time was presupposed to be completely different. Final summer time, the worth of US pure fuel hit a excessive of $10 per million British thermal models. The concern then was that Europe would run wanting winter provides as Russia lower its output in protest at sanctions.
At present, the worth has fallen to simply $2/mmbtu. Fuel consumption within the US has hit a five-year low due to a light winter. In keeping with the US Power Division, the nation will end March with greater than 1.9tn cubic ft of fuel in storage, 1 / 4 greater than the five-year common.
A large manufacturing increase within the 2010s led to a glut, low costs and ultimately monetary misery for some companies. Oil and fuel drillers have been pressured into austerity by shareholders.
The Ukraine conflict adopted. The US fuel trade envisaged a golden period the place output development could be supported by sustained larger costs and profitability. It’s turning into a protracted wait.
One optimist is Chesapeake Power, a pioneer of shale drilling. It went bankrupt in 2020 however re-emerged and pivoted away from oil and in the direction of fuel. Its shares have fallen greater than 1 / 4 from their peak final summer time. Chesapeake’s chief govt Domenic Dell’Osso informed buyers final month that the corporate needed to handle by way of value volatility this 12 months, however that the secular developments supported pure fuel as a profitable commodity.
His thesis relies upon partially on the amount of LNG export capability the US is including. The US solely started exporting pure fuel in 2016 and its present cargo capability has already reached 14bn cubic ft per day, a determine set to leap to about 20bn cubic ft with the addition of three new export terminals.
The US Power Division admits that its forecasts didn’t anticipate the dimensions of the present chill in pure fuel costs. It could develop into not more than a quirk of the climate. However buyers have been burned earlier than by prophecies of secular tailwinds and new manufacturing self-discipline. They need to retain their hard-won scepticism.
If you’re a subscriber and want to obtain alerts when Lex articles are printed, simply click on the button “Add to myFT”, which seems on the high of this web page above the headline.