U.S. Producing A Lot Of Natural Gas, But Still Not Any Making Money
Even though the United States continues to produce a lot of natural gas, the energy industry is still struggling to make any money doing it. This is likely the reason that U.S. natural gas production has finally declined this year versus the peak in 2016.
While the Mainstream media continues to promote “Energy Independence” and that the U.S. will be a major exporter of LNG, Liquid Natural Gas, it is difficult to do so if production starts to decline.
Yes, it’s true. According to the data put out by the U.S. EIA, Energy Information Agency, U.S. natural gas production peaked at 92 billion cubic feet per day (bcf/d) in February 2016, and declined to 89.6 bcf/d March 2017:
Now, the EIA estimates that U.S. natural gas production will likely increase to 93 bcf per day in 2018 due to increased drilling and higher prices. It will be interesting to see if their forecast materializes. However, the companies producing natural gas in the U.S. continue to spend more money on CAPEX – Capital Expenditures than they receive from cash from operations:
This chart is very easy to understand. The data in the chart is from 22 U.S. natural gas producers. The green line represents what they are spending in capital to drill the wells to produce the gas, while the brown line shows how much cash they are making from operations. Normally, the operating cash has to be high enough to pay for the capital expenditures or the there is a deficit.
So, if the companies are making enough operating cash to cover their capital expenditures, the brown line should be located above the green line, but as we can see…. it isn’t. Thus, these 22 natural gas companies continue to fork out more CAPEX then they are making from their operating cash. Which translates to NEGATIVE FREE CASH FLOW.
However, these companies negative free cash flow margin has declined as the two lines are now closer together. This is due to a reduction in CAPEX spending by these companies. When companies reduce their CAPEX spending, then it becomes quite difficult to increase production.
Unfortunately, many of the companies have already exploited the SWEET SPOTS in many of the Shale Gas Fields. So, it is going to be increasing difficult to increase production as they move out to the less profitable and less economic wells outside the sweet spots.
Americans have no idea that they have been SOLD A FAIRY TALE about “U.S. Energy Independence.” At some point, U.S. oil and gas production will decline in a BIG WAY… for good. When this occurs, it is only a matter of time before our way of life becomes unsustainable.
We will notice the SYMPTOMS about the same time the U.S. Pension and Retirement Markets start to experience huge problems with funding and benefit payouts.
If you haven’t considered putting some of that soon to be increasing worthless retirement assets into physical gold and silver… you may want to think LONG & HARD about it.
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