National Fuel expects natural gas prices to remain low - Buffalo News
National Fuel expects natural gas prices to remain low
National Fuel Gas Co. isn't expecting the low natural gas prices that have been a boon to consumers who are paying lower heating bills but a drag on its drilling business to rebound anytime soon.
The Amherst-based energy company said Thursday its profits during the current fiscal year are expected to be about 3% lower than they were forecasting three months ago.
The reason: Low natural gas prices that are cutting into the revenue National Fuel receives from its drilling business in northwestern Pennsylvania.
While National Fuel's gas wells are producing more natural gas than they were a year ago, the price that the company is receiving for that gas has dropped by about 29% before hedging. And company officials said they expect gas prices to remain low, averaging around $2 per 1,000 square feet for the rest of the fiscal year that runs through September. That's down about 17% from its previous price forecast.
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For National Fuel, though, the decrease in gas prices has been largely offset by its hedging program, which uses financial instruments to lock in prices in advance and reduce volatility. That hedging program meant that, despite the 29% drop in gas prices, the company received a price that was less than 1% lower than a year ago after the impact of its financial hedges.
National Fuel's gas production rose about 10% during the first three months of this year, mainly because of new wells that the company drilled. Production increased even after the company shut down existing wells that would have accounted for about 1% of its gas production because of the low prices.
In the longer term, however, National Fuel CEO David Bauer said he thinks natural gas prices can increase, as demand grows from rising electricity consumption.
"We all know natural gas prices have been under pressure," Bauer told analysts during a conference call Thursday.
"Longer term, I expect electricity demand will continue to grow, driven in large part by the massive build-out of data centers and the onshoring of manufacturing and other industrial processes, all of which need a reliable, cost-effective source of energy," he said. "Natural gas is the clear solution and will play a pivotal role in meeting these increasing energy demands, both domestically and abroad."
During the quarter that ended in March, National Fuel's adjusted profits rose 16%, largely because of stronger earnings from its pipeline operations and its utility businesses in Pennsylvania.