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Two big natural gas players see higher prices in 2021

By Paul J. Gough – Reporter, Pittsburgh Business Times

Two major natural gas producers in Pennsylvania see the colder winter weather and lower-than-average supplies in storage as strong signals for higher prices for natural gas and natural gas liquids in the year ahead.

The entire year of 2020 was tough for natural gas producers in Appalachia, suffering from low prices and oversupply even before the pandemic crushed demand and led to significant curtailments in gas production for many producers including EQT Corp. (NYSE: EQT), Range Resources Corp. (NYSE: RRC) and CNX Resources Corp. (NYSE: CNX). Cabot Oil & Gas Corp. (NYSE: COG), a major producer in the Appalachian basin, saw the lowest price realization in 2020 for natural gas in its 31-year history as a publicly traded company.

But that’s all changing in recent weeks, with gas and NGL prices rising. Prices for natural gas on the New York Merchantile Exchange have risen to $2.88 per thousand BTU, up from $2.45 a month ago and from the $1.43 52-week low reached in June. Natural gas storage, a key metric followed in the industry, have been drawn upon well above its five-year average due to higher demand from the cold snap across most of the U.S. In the northeast, for instance, storage is down 10% from a year ago.

“Despite the late start to winter, we are optimistic about the backdrop for natural gas prices in 2021,” Cabot CEO Dan Dinges said Wednesday during the company’s fourth-quarter conference call with financial analysts.

He pointed to what he called the largest weekly withdrawal for storage since January 2018 and putting current storage levels 8% lower than it was at the same point five years ago. Just a month ago, it was 9% higher than the five-year average.

“This is a dramatic turn of events,” Dinges said.

That positive sentiment echoed similar comments from Range Resources Corp., which held its own fourth-quarter conference call earlier in the day.

“We expect Appalachia pricing to experience meaningful improvements year over year,” said Range EVP Dennis Degner. About 80% of Range Resources’ natural gas goes outside the Northeast.

That carries over into NGLs, where Range is a major leader in propane, butane and ethane due to its emphasis on so-called wet gas production that includes NGLs. Propane stocks have been drawn upon 65% more than the five year average due to the weather, according to Range’s data. That’s boosted propane prices 75% compared to the third quarter of 2020, Degner said. Range is poised to have even more capacity to serve the propane market beginning in April with an increase on the Mariner East pipeline system that sends NGLs from southwestern Pennsylvania to the Marcus Hook industrial complex and than export to overseas markets.

“Range is strongly positioned to continuously capture the best value for its LNG production through the flexibility of Marcus Hook exports,” Degner said.

But Cabot’s Dinges, like others in the industry including EQT CEO Toby Z. Rice, didn’t see the pricing gains immediately turning to production increases. He said that Appalachian producers are focused on free cash flow and return to shareholders over production growth in the near future. Both Range and Cabot, as well as EQT, are only maintaining output levels and not expecting to increase gas production even with higher prices.

While both Cabot and Range Resources are based in Texas, their major operations are in Pennsylvania where they are top-five producers in the commonwealth and both have major regional headquarters outside Pittsburgh.

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