Major Natural Gas Producers Pushing for Long-Term Contracts with Buyers - WSJ (DVN, CVX, UNG, CHK)
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Natural gas prices may have found themselves stagnant, inducing major producers aiming to sign long-term contracts with electric utilities and other customers, a Wall Street Journal article reports today.
Companies like Chesapeake Energy (NYSE: CHK), Devon Energy (NYSE: DVN), and Chevron Corp. (NYSE: CVX) are willing to take the risk in any spike in natural gas prices by offering to sign long-term contracts that would guarantee buyers for their gas.
Energy companies have typically avoided long-term contracts, but now are looking for contracts between five and 10 years...or longer.
Chesapeake's CEO and Chairman Aubrey McClendon said that "the days of double-digit gas prices in the U.S. are over."
However, buyers of the gas also believe that the prices won't rise as much and are skittish about signing long-term deals.
The reason is that recently gas fields have been found that would b relatively inexpensive to drill and produce gas for decades, making producers a little more anxious to sign buyers for the long-term.
Long-term contracts also have regulators to face. If prices are above the contract, then the consumer benefits. However, if prices drop below the contract, the consumer would be stuck paying a higher rate, and then regulators would have to step in...something they would love to avoid.
Devon Energy's Larry Nichols says that he's optimistic that contracts will come about, maybe small deals at first to test the waters, but noting that it makes sense for both buyers and producers to smooth out prices as "the peaks are politically unattractive and the valleys are economically unattractive."
The United States Natural Gas (NYSE: UNG) ETF is the de facto natural gas ETF on the NYSE.
Companies like Chesapeake Energy (NYSE: CHK), Devon Energy (NYSE: DVN), and Chevron Corp. (NYSE: CVX) are willing to take the risk in any spike in natural gas prices by offering to sign long-term contracts that would guarantee buyers for their gas.
Energy companies have typically avoided long-term contracts, but now are looking for contracts between five and 10 years...or longer.
Chesapeake's CEO and Chairman Aubrey McClendon said that "the days of double-digit gas prices in the U.S. are over."
However, buyers of the gas also believe that the prices won't rise as much and are skittish about signing long-term deals.
The reason is that recently gas fields have been found that would b relatively inexpensive to drill and produce gas for decades, making producers a little more anxious to sign buyers for the long-term.
Long-term contracts also have regulators to face. If prices are above the contract, then the consumer benefits. However, if prices drop below the contract, the consumer would be stuck paying a higher rate, and then regulators would have to step in...something they would love to avoid.
Devon Energy's Larry Nichols says that he's optimistic that contracts will come about, maybe small deals at first to test the waters, but noting that it makes sense for both buyers and producers to smooth out prices as "the peaks are politically unattractive and the valleys are economically unattractive."
The United States Natural Gas (NYSE: UNG) ETF is the de facto natural gas ETF on the NYSE.
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