Lower crude oil prices whack oil-directed drilling, slashing crude production, which cuts associated gas output, tightening the gas supply-demand balance, and boosting gas prices enough to spur more gas-directed drilling — it’s a classic case of commodity market schadenfreude, where one product benefits at the expense of another. That’s the way it was supposed to work, according to various trading strategies touted a few weeks back. But here we sit, with crude oil prices still around $40/bbl and gas prices languishing at a paltry $1.66/MMBtu. Was there something wrong with the schadenfreude thesis, or do we have to look deeper to understand how prices will behave in this convoluted COVID era? In today’s blog, we’ll explore this question and what it may mean for natural gas prices in the coming months.
The NATGAS Appalachia weekly report provides the data and insights to monitor the northeast natural gas market’s twists and turns and identify the risks and opportunities along the way, including tracking supply-demand trends, outbound capacity and their impact on takeaway pipeline utilization, and regional prices.
To get a sense of what is ahead for natural gas, we first need to explore what is happening now, and it’s not pretty. The average annual price for natural gas so far in 2020 is about $1.80/MMBtu, lower than the annual average has been in the past 25 years. Figure 1 shows the more recent trend. Back in the good ole days of 2014, gas averaged $4.25/MMBtu, then fell with crude in 2015-16, and ratcheted back up to $3.00/MMBtu in 2017-18, before beginning its most recent fall from grace in 2019-20, as detailed in the monthly graph to the right in Figure 1.
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About the song
"Schadenfreude" is a song from Avenue Q, a musical comedy featuring puppets and human actors. The song is a comedic exploration of the schadenfreude emotion, which is the experience of pleasure, joy, or self-satisfaction that comes from learning of or witnessing the troubles, failures, or humiliation of another. The song is a heartwarming duet sung by characters Gary Coleman and Nikki. Avenue Q, with music and lyrics by Robert Lopez and Jeff Marx and book by Jeff Whitty, won Best Musical, Book, and Score at the 2004 Tony Awards. The musical played over 2,500 performances, ranking 24th on the list of longest-running shows in Broadway history.
Gary Coleman, one of the main characters in the musical, is a parody of the real-life child star with the same name. In the musical, after being robbed of his childhood earnings by his parents, Gary becomes the maintenance man of Avenue Q. In singing the schadenfreude duet, he claims to take pride in the fact that others take pleasure in his misfortune and views it as a public service.
