CARLIFORNIA- US natural gas and gas liquid prices are higher outside North America, but it will take time to develop those markets, say analysts.
The producers of these commodities are struggling with a cash-flow squeeze and are unlikely to find any rescue, as investors see little value in companies without oil output.
Facing a severe natural gas glut, many companies diverted investment to raise production of more profitable natural gas liquids (NGLs) such as ethane, propane and butane.
But all they managed to do was to spread the glut to NGLs, slashing prices with supply seen outstripping demand until some planned new plants start production in 2015.
Ethane prices have halved in 2012, while propane and butane have fallen nearly a third — offering little respite from gas prices that hit a decade low earlier this year.
With no respite in sight, investors are shaking their heads and looking away.
“It’s going to be a long road for these guys that are waiting for natural gas prices to rebound,” said Sandy Villere, co-manager of investment firm Villere & Co, which had more than $1.4 billion under management as of June 30.
“I think even if prices go up in the short run, they are going to be down in the long run. This is going to be a tough strategy.”
Quicksilver Resources Inc, 96 per cent of whose second-quarter production revenue came from gas and NGLs, has been unsuccessfully looking for a joint venture partner since the start of the year to fund a move to invest in oil production from its West Texas fields.
“We’re definitely vested to get oil in the product mix and diversify out of natural gas as soon as we can,” said David Erdman, a spokesperson for Quicksilver.
Both industry and private equity firms are staying away from the sector, which is also facing a squeeze in bank lending.
Private equity firms are unwilling to invest in a sector that does not offer good returns within one-to-two years and there is no sign of the gas glut easing.