Could Lower 48 Natural Gas Balances Tighten This Summer?

The Lower 48 natural gas market has had the most bearish start to a new year in a long time. Production has been at record highs, an exceptionally warm start to January suppressed demand, and LNG exports have been hobbled since last June when Freeport LNG went offline. The CME/NYMEX Henry Hub February gas futures contract slid to an 18-month low of $2.94/MMBtu last Thursday and expired Friday at $3.109/MMBtu, down 54% from where the prompt contract closed just two months earlier. The March contract extended the slide Monday to a 20-month low of $2.677/MMBtu. Freeport’s eventual return will restore existing export capacity, but there’s no new LNG export capacity due online this year — for the first time since 2016. After one of the tightest gas markets of the last decade in 2022, the stage is set for one of the most oversupplied markets we’ve seen in years. But the bulls out there can take solace: 2023 will also mark the final throes of the kind of oversupply conditions that defined the Shale Era as we know it. In today’s RBN blog, we discuss how we got here and RBN’s outlook for natural gas supply and demand.

The CME/NYMEX Henry Hub prompt natural gas futures prices have been relatively rangebound this injection season and have averaged around $2.60/MMBtu since June — a third or less of where prices stood during the same period last year, in the $7-$9/MMBtu range, and at or below most natural gas producers’ breakeven costs. Yet, this is a much rosier scenario than it could have been considering that the first quarter of 2023 was one of the most bearish in over a decade and led to a massive storage surplus vs. last year that persisted through much of the summer. Since setting the year-to-date monthly average low of $2.19/MMBtu in April, prompt futures rose to an average of nearly $2.50/MMBtu in June, ~$2.65/MMBtu in July and August, and have mostly stayed in the $2.50-$2.75 range in September to date. In today’s RBN blog, we break down the factors that kept prices from unraveling this injection season to date and the implications for the rest of the shoulder season. 

Lower 48 natural gas production this month hit a once-unthinkable milestone, topping the all-important psychological threshold of 100 Bcf/d for the first time. Volumes have remained at record highs through mid-September, with year-on-year gains expanding to a breathtaking 7-9 Bcf/d above last year at this time (when hurricane-related shut-ins were in effect). The record production levels coincided with a seasonal decline in weather-related demand, as well as the ongoing outage at the Freeport LNG export terminal. Remarkably, however, even with all-time high, ~100 Bcf/d natural gas production and Freeport LNG offline, the Lower 48 gas market balance averaged tighter year-on-year — a testament to just how strong consumption has been lately, and for much of this summer for that matter. In today’s blog, we look at how the supply-demand balance has shaped up this month and where it’s headed near-term.