Chesapeake Energy: Industry Can Cope, Not Grow with $4 Nat Gas

Natural gas prices, still sitting below $4 per million British thermal units, have produced an interesting combination of cautious hope for the future and we-can-cope-with-this-for now attitude.  

As BNET noted in a post earlier this week, Chesapeake Energy CEO Aubrey McClendon told analysts on its August earnings call he expected natural gas prices would rise between $6 and $8 per thousand MMBtus by summer 2010.

McClendon struck a more cautious tone Wednesday at the IHS Herold energy conference, according to Reuters.

“The industry can cope with $4 gas. The industry can’t grow or sustain production with $4 gas,”  said McClendon during the conference.

So, where do prices need to be? Three times the finding costs, which translates to $6 to $9 in the next 12 months, McClendon said during the conference according to the Reuters report.

His comments are interesting, considering natural gas prices rebounded in the past week.

Natural gas for October delivery on the New York Mercantile Exchange closed at $3.95 per MMBtu on Sept. 24. Gas futures hit an intraday low of $2.409 MMBtu on Sept. 4, the lowest level since March 2002. 

When natural gas contracts were trading at its lowest levels in seven years,  Anadarko Petroleum and Chesapeake were busy expanding their investments in shale gas, as the FT noted.

McClendon hasn’t been alone in his hopes for rising natural gas prices. SandRidge Energy CEO and Chairman Tom Ward — who co-founded Chesapeake in 1989 – told investors during a conference call this week natural gas prices have a bright future. 

Winter months — when homeowners typically use gas as a heating fuel — may push prices higher. Still, inventories continue to rise and perhaps that’s why McClendon was adding a few cautionary notes to his optimism.

Inventories rose to 3.525 trillion cubic feet as of Sept. 18, according to the weekly natural gas storage report released today by the Energy Information Administration.Stocks were 509 billion cubic feet higher than last year at this time and 485 bcf above the 5-year average.