The largest US shale gas producers have nearly half of their remaining 2025 production hedged at $3.95/Mcf and have already begun locking in $4-plus prices for their 2026 production, according to an analysis by S&P Global Commodity Insights.
“While hedges covering 2025 natural gas production increased by a modest 230 Bcf, hedging activity for 2026 increased significantly as 932 Bcf of hedges were added” since the beginning of the year, upstream analysts Travis Williams and Thomas Wilson said in a report released June 27. The analysis covered hedging activity as of the end of the first quarter.
The group of large shale gas exploration and production companies has 48% of expected 2025 gas production hedged, a 2% increase from the beginning of the year, at an implied price of $3.95/Mcf, Commodity Insights said. For 2026, 26% of production is hedged at an implied price of $4.10/Mcf — up from 18% at the beginning of the year.
Oil and gas producers use hedging as a form of price protection for their product. The most frequently used contract is the swap, a contract that pegs a specific price and pays the driller if the price falls short. The seller of the hedge, most frequently a bank, collects if prices exceed the swap’s price point. That price point can be fixed or fluid.
Many swaps are written using the NYMEX gas futures daily price curve. According to Commodity Insights, US gas drillers have locked in prices, on average, just under NYMEX pricing for both 2025 and 2026.
The disadvantage of hedge contracts for the driller is that they cap the potential reward if commodity prices go higher than expected. E&Ps have slowed hedging for the rest of 2025, hoping to capture higher prices later this year.
“Coupled with a continued bullish outlook on gas prices driven by LNG buildout and forecast increases in power demand, many operators are likely near the limit of adding hedges for the remaining balance of 2025 and may leave the remainder of production open to capture upside,” Commodity Insights said.
An outlier in the group, Appalachia’s largest producer EQT Corp., will enter 2026 with no price protection in place. Lenders often demand hedging to protect their loans. But EQT executives told analysts on the company’s April 23 first-quarter earnings conference call that the company has paid down enough debt to allow it take the risk to capture even higher prices.
“Rapid de-levering positioned us to add no incremental hedges during the quarter, and we remain unhedged in 2026 and beyond,” EQT CFO Jeremy Knop told analysts. “Our position at the low end of the cost curve acts as a structural hedge, which in turn facilitates unmatched exposure to high-priced scenarios by limiting our need to financially hedge.
“Instead of defensively hedging, we can now patiently look for opportunities to capture asymmetric skew in the options market, which positions EQT to realize higher-than-average gas prices through the cycle,” Knop said.
Source: Reuters