Chesapeake CEO sounds alarm after natural gas prices fall 50% in one month

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

Natural gas prices have plummeted over the past month as an unusually warm winter hits both the US and Europe, reducing demand for the heat source.

That has one energy CEO sounding the alarm and calling for measures that the natural gas industry must take to prevent the same fate of oil companies during the years-long shale crisis that began in late 2014.

The fall in natural gas prices has been rapid, with the commodity falling 51% in just under a month.

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

Natural gas prices rose in 2022 as Europe raced to replenish its reserves for the winter, while Russia reduced its supplies amid rising tensions over Moscow’s war against Ukraine. But with homeowners using less gas so far this season, demand has fallen and supply has risen, providing a powerful catalyst for lowering prices.

To counter a further decline, Nick Dell’Osso, CEO of Chesapeake Energy, is urging his industry to scale back growth and reduce gas supply to balance supply and demand.

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

Chesapeake could now be close to launching a share buyback, Bank of America analyst Doug Leggate said in a note, imitating a tactic used after the shale bust.

The company sold some South Texas shale operations for $1.4 billion to Wildfire Energy last week and will use the proceeds to clean up its balance sheet. BofA believes Chesapeake’s debt service will help it deliver greater returns to shareholders.

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

When fracking kick-started the US oil shale boom in the mid-2000s, more and more energy companies scrambled to buy up shale assets and pump up as much oil as possible. But after OPEC refused to cut its own production in 2014 to offset strong shale growth, the tidal wave of new supply sent oil prices into a six-year bear market that hurt corporate earnings.

Now the big oil company is less focused on supply growth and more on profit growth – and instead of reinvesting most of its profits into producing more oil, it is paying record dividends to shareholders and launching share buyback programs.

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

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