Analysts expect billions of dollars of writedowns in the US natural gas assets value after Chevron announced it expected a cut in the value of its gas assets by $10 billion to $11 billion this quarter. Chevron is the fourth major oil company to do so.
Previously, BP, Repsol, and Equinor have wiped an over $11 billion from the value of their shale assets in North America this year. Chevron on Tuesday said most of its expected writedown in the fourth quarter came from its shale gas assets in Appalachia.
This was a response to the declining gas prices which are on course to touch a 25-year low. Gas prices have been under pressure from a steady increase in US gas production, which much of it comes as a byproduct of shale oil drilling.
The writedowns are also a result of companies overestimating gas prices over the last decade. As early as 2018, Shell expected gas prices of $3.50/MMBtu in 2020 and 2021, while BP expected prices of $4/MMBtu. The benchmark price is around $2.28/MMBtu currently, the lowest since 1995. The price has been below $2.70/MMBtu for most of 2019 and is expected to fall further to below $2/MMBtu.
However, US gas production does not change in response to weak prices as most of it is a byproduct of oil drilling, according to analysts. US energy firms continue to produce more valuable crude oil, boosting output of unwanted associated gas. US producers, especially in the Permian Basin, are on course to flare a record amount of that gas this year.
