KUALA LUMPUR (Nov 22): US gas producers are set to book billions of dollars in hedging losses next year because they hedged most of their 2022 production before the recent energy crunch caused gas prices to soar.

According to Norway-based independent energy research and business intelligence company Rystad Energy, its analysis zoomed in on a peer group of shale-gas-focused producers that accounted for 35% of unconventional gas production and about 53% of shale gas production in the US land region this year.

It said 11 operators stand to lose more than US$5 billion (about RM20.93 billion) in 2022 if the average Henry Hub price strip remains at US$4 per metric million British thermal unit (MMBtu) — an amount that could double if Henry Hub prices average US$5 per MMBtu.

The "Henry" hub is so named for its location in the Henry hamlet of Erath, which was named after the Henry High School that stood there until damaged by the flooding and storm surge from Hurricanes Ike and Rita, though the natural gas facilities suffered minimal damage.

Rystad said the reason behind the expected losses is that the operators already hedged more than half of their 2022 production by the time they reported their second-quarter results, when prices were trading much lower than currently inflated levels.

It said by the end of September, as much as 64% of their projected production was hedged.

Rystad said tight-oil-focused producers tend to hedge a lower share of their associated gas production,

It said the hedging profiles of private shale gas-focused operators vary widely, but on average they behave in line with the researched peer group.

Gas producers focused on the cash flow from proved developed producing resources in conventional fields tend to hedge only a limited share of their production.

Still, some have a high percentage of fixed-price sales with deliveries to local markets, it said.

Rystad said in terms of total volumes, the associated gas contracts of tight-oil-focused public producers would be about 50% lower than those of the shale-gas-focused peer group.

Still, their typical hedging floor is somewhat higher based on their third-quarter earnings.

For private operators, there is lower visibility, but significant Haynesville private names tend to hedge well in advance, indicating low hedging floors.

Rystad head of shale research Artem Abramov said given that the whole strip for 2022 currently remains above US$4 per MMBtu — though a strong backwardation is present in the shape of the curve — the current state of the programmes is likely to impose a material downward pressure on corporate cash flows of gas producers next year.