December Gas Futures Post Modest Gain Despite Bearish Storage Report

After holding above $2/MMBtu in the first half of January, the CME/NYMEX February natural gas futures contract caved in this week, closing Tuesday and Wednesday at $1.895/MMBtu and $1.905/MMBtu, respectively. The last time we saw prices this low was in March 2016. But to see such levels trading in January, typically one of the coldest and highest-demand months of the year, you’d have to go back more than two decades — to 1999. Today, we explain the fundamentals behind the price collapse earlier this week and its implications for the 2020 gas market.

The natural gas futures contract for the prompt month barreled a net ~$1.00 (26%) higher in the past 12 days as the potential for prolonged production shut-ins in the Gulf of Mexico after Hurricane Ida amplified already-heightened supply fears in both the U.S. and international gas markets. The blistering price action sent the CME/NYMEX Henry Hub October futures contract soaring on Wednesday to an intraday high above $5/MMBtu and a settle of $4.914/MMBtu, the highest during September trading since 2008, while the prompt December and January contracts settled above $5/MMBtu for the first time in years. Prices at European and Asian gas/LNG hubs have similarly rallied this summer to multi-year or even all-time highs. Offshore Gulf gas production has since begun to recover, slowly, after the Ida-damaged Port Fourchon in Louisiana, the base of offshore oil and gas operations, reopened over the Labor Day weekend, but the bulk of it remains offline as power outages and other operational challenges persist. The shut-ins are exacerbating an already tight market, marked by record LNG exports, lackadaisical production growth, and a growing inventory deficit compared with year-ago and five-year average levels. Those underlying fundamentals will remain a trigger point for price spikes well after Ida-related shut-ins recover. Today, we discuss where the gas market stands heading into the final months of the injection season and the implications for winter gas pricing.

The once unthinkable level of 100 Bcf/d for U.S. natural gas production is just around the corner, it would seem. Lower-48 gas production last week hit a new high of 96.4 Bcf/d, after surpassing 95 Bcf/d not too long ago (in late October). That’s remarkable considering that production was only 52 Bcf/d just 12 years ago. Gas demand from domestic consumption and exports this year has set plenty of records of its own, but the incremental demand has not been nearly enough to keep the storage inventory from building a significant surplus compared with last year. CME/NYMEX Henry Hub prompt gas futures prices tumbled nearly 40 cents last week to $2.28/MMBtu, the lowest November-traded settle since 2015. Today, we break down the supply-demand fundamentals behind this year’s bearish storage and price reality.