A bullish long-term outlook for rising natural gas demand and pricing has partially mitigated the current deep concerns about the steep erosion of oil prices. This optimism is driven by growing LNG exports, soaring demand around data centers and artificial intelligence (AI) applications, and the role of gas as a cleaner-burning fuel. However, short-term gas pricing has proven very volatile, as the near-month NYMEX price has yo-yoed dramatically in October and the Energy Information Administration (EIA) recently cut its January forecast by $0.50/MMBtu. This volatility can have significant impacts on the earnings and cash flows of gas producers. In today’s RBN blog, we present a new metric that calculates the gas price sensitivity of major U.S. producers.
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In the first blog in this mini-series, we introduced a metric that measures oil price sensitivity, or the degree to which a company’s earnings or cash flow will change based on the oil price. This effort was driven by the shock wave resulting from the EIA’s recent forecast that the WTI oil price would plunge by 26% in 2026 to an average of $47.77/bbl. That’s below the widely accepted breakeven price of $50/bbl for shale production and could threaten the substantial shareholder-return programs of the major producers. Our analysis of more than three dozen leading companies showed that hedging and income from non-upstream assets dropped their average oil price sensitivity from 65% to 41%, although the results varied widely.
The current magnitude of price volatility for natural gas (see the recent changes in the Henry Hub price in Figure 1 below) is not expected to be as dramatic as it was for oil, but we decided it would be helpful to develop a companion metric to measure gas price sensitivity. We cover 37 publicly traded E&Ps, but producers from our Oil-Weighted E&P peer group have minimal exposure to natural gas pricing. For example, natural gas represents just 5% of total revenues for Chord Energy, 3% for Diamondback Energy and 3% of U.S. revenues for Occidental Petroleum (Oxy). Although the group has an average gas price sensitivity of 13%, the overall impact on their total financial performance is so minimal that we have excluded them from our analysis. Therefore, we focused on the Gas-Weighted and Diversified producers.
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About the song
"Sensitive Kind" was written by J.J.Cale and appears as the sixth song on J.J. Cale's fifth studio album, 5. The theme on 5 focuses on love and lust, and this song concerns treating your lover right because she's the "sensitive kind." Listen to Cale's guitar licks on this song, and they will tell you everything you need to know about restraint and soulfulness in playing the blues that defines the "Tulsa Sound." The song was recently featured in the Hulu series, The Lowdown, which takes place in Tulsa. It has been covered by Santana, Eric Clapton, Don White, and Donovan. Personnel on the record were: J.J. Cale (vocals, guitars), Carl Radle (bass), Buddy Harman (drums), Jimmy Karstein (congas), David Briggs (piano), Farrell Morris (vibraphone), and Cam Mullins (string arrangements).
The album, 5, was Cale's first album released in three years. It was recorded at Crazy Mama, The Lakehouse, Columbia, and Woodland studios in Nashville, where Cale was living at the time. Produced by Audie Ashworth, it was released in August 1979. It failed to make the Billboard charts. No singles were released from the LP.
J.J. Cale (John Weldon Cale) was an American guitarist, singer, and songwriter. Raised in North Tulsa, Cale developed his guitar chops playing at early rock clubs in Tulsa such as The Birdcage, Glory Hole, and Paradise Club. His comrades-in-arms at the time were Tulsa musicians Leon Russell, David Gates, Carl Radle, Chuck Blackwell, Jimmy Marham, Roger Tillison, David Teegarden, and Jimmy Kasrstein, all of whom made the trek to Los Angeles to seek fortune and fame in the late 1950s. Cale made most of his money from other artists covering and having hits with his songs. He released 15 studio albums, three live albums, two soundtrack albums, 13 compilation albums, and 61 singles. His early singles from the late '50s to the mid '60s are worth looking up. In 1966, he was part of The Leathercoated Minds, which released the album A Trip Down Sunset Strip on Viva Records. Produced by Snuff Garrett, the album included Tulsa's Roger and Terrye Tillison, Jimmy Markham, Leon Russell, and Jimmy Karstein. The Road to Escondido, the album Cale made with Eric Clapton, won a Grammy Award for Best Contemporary Blues in 2008. J.J. Cale died in San Diego in July 2013 at 74.
"About the Song" -- written by Mickey McMahan , RBN Director of Musicology
