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July 23rd, 2012:

Natural Gas Prices Still Far From Covering Production Costs

American Energy Coalition - July 23rd, 2012

Natural gas prices have been rising while oil prices are falling, but current natural gas prices are too low to cover the ongoing cost of production, according to a recent article on "Despite the recent surge in prices, natural gas remains well below the $4/1 million Btu estimate that [Standard & Poor's] believes would cover the discovery, development, and production cost of natural gas," the article states. The situation is precarious for production companies trying to bring natural gas to market at those prices, according to Forbes. The article quotes a report by Standard & Poor's stating that cash flows from lower natural gas prices "are in many cases insufficient to fund the high levels of capital expenditures companies need to acquire acreage and ramp up production." "Thus, natural gas-tilted companies are increasing leverage and burning through cash while tapping credit lines," the article states. "Natural gas prices have been on a tear," the article states, with spot prices increasing 65% between April and July. At the same time, the price for U.S.-produced crude oil fell from $100 per barrel to $78 in June before correcting back up to the upper $80s, according to Forbes.

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