by: Matt Chambers From:The Australian October 13, 201212:00AM
US natural gas prices are storming higher, climbing 90 per cent from a 10-year low hit earlier this year and passing levels at which BHP Billiton is ready to restart curtailed onshore production at the US shale gas assets it was recently forced to write down by $US1.8 billion ($1.7bn).
Forecasts for a normal US winter, as opposed to the record warmth recorded last winter that left gas storage across the nation full, have sent domestic gas prices up 29 per cent since the start of September to an 11-month high of $US3.62 per million British thermal units (mmBtu).
The price is a far cry from the $US1.90 low the benchmark Henry Hub price hit in April, when it had fallen to less than half the levels it was at when BHP made $US20bn of badly timed 2011 shale acquisitions on the assumption gas prices would rise.
This year's price slump forced BHP petroleum chief Michael Yeager into a quick refocus of his new onshore US shale business, which is centred on Texas and Arkansas.
He has shut wells that produce only gas and is ramping up the oil-rich fields he acquired in Texas quicker than previously planned.
Last month, Mr Yeager said gas prices, then at about $US2.70, were climbing back towards levels where the company could start to turn the gas wells back on.
"Right now we are looking at something around $US3.50 -- that would allow us to start mobilising again with earnestness, and at $US4, we make $US1 profit," Mr Yeager said.
"That is what we would like to get back to, and that is what we are waiting on.
"We like those fundamentals and we are very optimistic that this will be the fuel for the next 30 years and we are positioned in a giant way when that happens."
Yesterday, BHP could not provide any update on whether it had started getting ready to produce more gas.
The mining giant has said it will produce about as much gas this financial year as it did last year -- about 140 million barrels of oil equivalent -- as increased production from Australia offset declines in the US. The US gas price rise could change this.
Bets on the weather -- which is predicted to be mild this northern winter -- are always risky ones, but indications are that gas prices are set to rise further. For one, the Nymex Henry Hub gas futures indicate traders are punting prices will be at $US4 in February.
Morgan Stanley analysts said prices could in the first quarter of next year reach $US5 for the first time since mid-2010 if temperatures stay at 30-year averages this northern winter, spurring increased gas demand compared with last year's record-high winter temperatures.
"As the year-on-year inventory surplus moves into a deficit, the stage is set for stronger gas prices," the bank said.
Morgan Stanley predicts prices will average $US4.20/mmBtu between November and March.
Additional reporting: Dow Jones newswires
AQO Price at posting:
15.0¢ Sentiment: ST Buy Disclosure: Held
