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The market price of natural gas is currently near $8.00 per MMBtu, following a recent surge to above $9.00 per MMBtu, which was the highest price since 2008. The current forward NYMEX strip shows an average natural gas price close to $6.15 per MMBtu over the next 18 months.
Forward gas prices are primarily driven by the following factors:
However, natural gas production has not always been equally responsive. Supply chain issues, the ability to secure labor and crews, and a general hesitancy of producers are collectively holding back the drilling of new wells and completing previously drilled wells. And while higher natural gas prices are good for producers and marketers, it brings attention to certain issues for companies that may have been on the “back burner” since natural gas prices had been exceptionally low during 2019 and 2020.
Of course, higher gas prices result in higher net income, improved cash flow, higher margins, more easily met covenants, improved liquidity, increased availability to capital resources and improved credit ratings, among other benefits. Companies will need to weigh decisions regarding capital expenditure levels, debt reduction and dividends, to name a few.
In addition to cash flow management, higher natural gas prices bring up the following accounting and audit concerns:
There’s certainly a lot to take in and understand. If you have questions surrounding the current natural gas pricing environment, feel free to contact your Schneider Downs consultant.
The Schneider Downs Energy & Resources industry group provides specialized financial advice and services to our clients in the oil and gas, mining and aggregates, forest products and alternative fuel and energy industries throughout the Columbus and Pittsburgh regions. Our extensive knowledge of industry issues enables us to provide proactive audit, tax and management consulting services.
To learn more, visit our Energy and Resources Industry Group page.
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