Shale gas price hedging: a cash machine at stake?

Shale gas price hedging: a cash machine at stake? / Pierre-Adrien Ludwig, Mines ParisTech, EU Energy policy blog, 17/04/2011

The fast development of shale gas has revolutionized the American natural gas market; shale gas production now represents more than 20% of the domestic consumption. Meanwhile, natural gas prices dropped: the NYMEX price now stagnates around $4/MMBtu from $12 in June 2008. How is it possible to ensure a fast-increasing and profitable production at such prices? Part of the answer is that producers were actually paid a much higher price, thanks to hedging strategies on commodity markets. But now, pessimistic market expectations make it harder and harder to benefit from this mechanism, putting an important share of this capital-intensive industry’s cash resources at risk…

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