How far will cheap natural gas underpin US economic performance?

Natural gas prices tumbled by 62% in the US last year, as production surged past demand.

The drop in gas prices boosted the exports of US liquefied natural gas and reduced the costs of in-house heating, creating more disposable income. 

And indeed, the US labor statistics office said that the drop in natural gas prices played an important role in boosting economic performance and raising cash reserves, which were used on other products and services. 

The drop in natural gas prices also means a drop in the costs of fertilizers sometime in the future, which could lead to lower food prices. 

Some analysts warn that lower natural gas prices could make the production of the gas uneconomic, especially as most of the output growth last year came in the form of gas accompanying oil wells.

For oil operators, producing the gas costs next to nothing, but for dedicated gas operators, it’s a blow. 

EQT, the largest gas producer in the US, recently announced plans to strategically reduce production in response to prices, starting with 7-8% reductions in February. 

However, the modest cuts in production won’t quickly affect prices quite yet, as natural gas futures still trade at below $2 per million British thermal units. 

It seems that traders have already priced in the upcoming expected decline in gas production in the US.

Reuters recently reported that total natural gas production in the US fell by 7% in February, however prices fell by nearly 27% in the first two months of the year, especially as demand declines and the weather warms up.