US natural gas producer EQT only plans to use financial derivatives to lock in prices for half of its output at the most in the coming years, a break from years' past when it was hedging the vast majority of its volumes.
The second-largest US gas producer by volume would need to have "conviction" on its outlook for US gas prices in order for it to hedge a full 50pc of its volumes, EQT chief executive Toby Rice told Argus in an interview Wednesday in New York City.
"I think that would be a limit," Rice said.
EQT remains entirely unhedged for 2026, he said.
Without a clear sense of the trajectory of the US gas market — a famously volatile market which has only become more volatile in recent years — EQT believes erring on the side of maximum exposure to spot prices will lead to higher average revenue. EQT made $68mn on its derivatives contracts in 2024 and $1.8bn in 2023, according to federal regulatory filings. This was after losing $4.6bn on derivatives in 2022 after Russia invaded Ukraine, sending US gas prices near $10/mmBtu, heights from which EQT was partly locked out because of its hedges.
EQT's unhedged strategy is a departure from when Rice was appointed chief executive in 2019 in a bid by activist investors to overhaul the company's board of directors and change its strategy. At that time, EQT was hedging up to 80pc of volumes, largely due to its higher cost structure, Rice said. But now, with EQT able to break even with US gas prices as low as $2.45/mmBtu — excluding its interest payments on its debt — hedging has become an "entirely opportunistic" tool for EQT, rather than a defensive necessity, he said.
The prompt-month settlement price for Nymex gas at the US benchmark Henry Hub so far this month has averaged $3.67/mmBtu.
EQT is also able to hedge less of its gas because it has increased the amount of gas it can move to consumers outside its core operating area in Appalachia. EQT sells more than 4.6 Bcf/d directly to end users, including power companies and utilities, local distribution companies and LNG export terminals, according to a confidential investor slide obtained by Argus. Of that, 3 Bcf/d goes to power and utility companies including NextEra Energy, Duke Energy, Southern Company and Constellation Energy; 1 Bcf/d goes to local distribution companies including Illinois-based Peoples Energy, Washington, DC-based WGL Holdings and New Jersey Natural Gas; and 600mn cf/d goes to LNG facilities including Venture Global, Sabine Pass, Cameron LNG and Berkshire Hathaway's Cove Point LNG.
Moving gas from Appalachia to population centers elsewhere in the country, where gas prices are higher, has historically been a challenge for Appalachian producers because of opposition from state regulatory agencies to the construction of new interstate pipelines. EQT has been able to overcome this challenge in part by signing long-term supply agreements with southeast utilities Duke and Southern for 1.2 Bcf/d of gas, which will be shipped on EQT's Mountain Valley Pipeline, as Argus reported earlier this month.
Gas buyers have become more interested in signing long-term supply deals with EQT as heightened volatility in the US gas market has increasingly lured in commodity traders who act as middlemen, Rice said. Switzerland-based commodity trader Glencore and New York-based quantitative trading firm Jane Street, among others, have been building up a US gas trading presence over the past year.
IRA rollback could boost gas demand
Rice also sees bright spots for gas amid an effort by Republicans in the US Congress to use a filibuster-proof budget bill to phase out clean energy tax credits from former president Joe Biden's Inflation Reduction Act.
If Republicans get their way, this could slow the growth of US renewable energy generation, "easily" boosting US gas demand by 1.5-2 Bcf/d by 2030 as gas takes market share from what would have otherwise been occupied by renewables, Rice said.
"If solar and wind investments decrease, that [energy] demand's not going away," Rice said.
EQT also expects planned data centers running artificial intelligence software to increase US gas demand by 4-6 Bcf/d over the period, he said. EQT is in discussions with "roughly a dozen proposed power projects" in Appalachia on an expected surge in US power demand, only about 40pc of which stems from planned data centers, Rice said. Rice still expects to announce a gas supply agreement involving one of these projects by the end of the year.
