| July 27
July 27 The glut of shale gas in the United
States has been a double-edged sword for earnings this week,
cutting into profit for producers such as Exxon Mobil and
Chevron, but benefiting chemicals makers and power producers.
U.S. natural gas prices tumbled to their lowest in a decade
during the second quarter as output from vast new shale rock
fields overwhelmed demand.
For big buyers of gas, such as power producer Calpine Corp
and chemicals maker LyondellBasell Industries NV
, the drop below $2 per million British thermal units was
a boon to profits.
LyondellBasell said its cost to produce ethylene, a key
chemical used to make plastics and many other consumer goods,
fell 46 percent in the United States during the second quarter.
That helped the company top Wall Street estimates, even as
the weak economy dented its revenues, and its shares rose more
than 9 percent in afternoon trading.
For Calpine, whose fleet of power plants relies heavily on
natural gas, the cheap fuel helped it win market share from
coal-fired power plants.
"Natural gas generation is becoming the preferred generation
of choice since it is cheaper, more efficient, more flexible and
environmentally cleaner than coal," Calpine Chief Executive Jack
Fusco told a conference call.
For decades, coal-fired power plants supplied about half the
U.S. power market, but that has shrunk as vast new supplies of
natural gas have come on line.
U.S. power production from natural gas matched the output
from coal-fired plants for the first four months of 2012, with
each of the fuels contributing 32 percent of the nation's power,
according to data released earlier this month by the Department
of Energy's Energy Information Administration.
Still, natural gas prices have already started to rise,
largely because companies such as Exxon Mobil Corp,
Chevron Corp and other producers have chopped spending
on new wells.
"It's pure supply-demand economics," said Mike Kelly, an
analyst with Global Hunter Securities in Houston. "The cure for
low gas prices is low gas prices."
PAIN AT THE WELLHEAD
The cheap gas caused some acute pain for producers over the
past few months.
Chevron, which boosted its U.S. natural gas presence with
the $3.2 billion purchase of Atlas Energy last year, said its
sales price for the fuel fell by 50 percent to $2.17 from a year
Exxon Mobil, which jumped to the top among U.S. producers
with its 2010 purchase XTO Energy, said its U.S. oil and gas
earnings tumbled 53 percent, largely from the weakness in gas
Exxon CEO Rex Tillerson has said the low prices in the
second quarter did not cover production costs and told an
audience in June that producers were "losing their shirts" in
But the pain for the big producers is abating because
natural gas prices have rebounded more than 20 percent since
mid-June to about $3.04. NYMEX futures prices show the prices
likely rising to $3.50 by the end of the year.
That rise cannot come soon enough for U.S. coal producers,
whose shares have been hammered largely by the declining demand
for electricity producing thermal coal.
So far this year, the Dow Jones U.S. Coal Index,
which includes Alpha Natural Resources Inc, Peabody
Energy Corp and Patriot Coal Corp, has
plummeted 43 percent and hit a four-year low earlier this week.
Arch Coal Inc, which rallied 30 percent on Friday
a fter dropping to a 12-year low on Thursday, posted a second
quarter loss on Friday, largely due to costs associated with
shutting down unprofitable mines.
But it still managed to beat the gloomy Wall Street
forecasts and it held out hope the recent rise in natural gas
prices would create an opening for its lower-priced Powder River
"We're not bringing on a lot of additional production at
this point," CEO John Eaves told a conference call. "We're not
going to do that until we see more sustained demand moving
forward. And, hopefully, we'll see that in 2013, 2014."