The U.S. Natural Gas market has gone through many transitions in it’s time, from fears of shortages, to ever-increasing production thanks to unconventional drillings and associated gas from crude production. Included in the long list of market changes is the introduction of U.S. natural gas exports in the form of liquified natural gas (LNG), and their effect on domestic prices and volatility. U.S. LNG export capacity has gone from nothing to a whopping 13.4 Bcf/d since Cheniere’s Sabine Pass LNG facility was first commissioned in 2016 and U.S. Natural Gas started dancing on the global stage. Henry Hub prompt volatility began to deviate from its historical average of 40%-50% in 2020 (green circle in left-hand chart below) as hedgers and speculators alike had to price in more than just the U.S natural gas market dynamics, but markets which the U.S. was exporting to…a global shutdown didn’t help. Not only do foreign market dynamics affect domestic prices, but so does the ability for U.S. LNG to get there i.e. LNG terminal infrastructure. Throughout 2023, historical price volatility (right hand chart below) trended downward from over the highs of 2022 to a reasonable 47% at the end of the year, a testament to the market’s perception that it is amply supplied.
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Arctic Shuffle - February Polar Vortex Effect Puts $3/MMBtu Gas Prices Back in Play
Weather is the perpetual wildcard in the natural gas market, but it’s been particularly shifty this winter, keeping market participants — and weather forecasters, for that matter — on their toes. Gas futures prices started this season at $3.30-plus/MMBtu, but then endured some of the warmest weather on record (in November and January), including a couple of polar vortex head fakes over the past month or so — weather forecasts at times in January started off much colder but ultimately reversed course. Prompt CME/NYMEX Henry Hub futures prices have seesawed as a result. Despite the weather setbacks, however, prices have held on in the $2.40-$2.70/MMBtu range through much of winter and averaged more than $0.60/MMBtu higher year-on-year in January. And, with an Arctic blast set to unfurl across the Lower 48 this week, prices last Friday topped $3/MMBtu again in intraday trading before settling in the high-$2.80s/MMBtu Friday and Monday. Today, we examine the supply-demand factors underlying the recent price action, and prospects for sustained $3/MMBtu gas prices.
Undone - U.S. LNG Export Demand Unravels
U.S. LNG exports in recent months have gone from providing a consistent and growing source of demand to balance the U.S. natural gas market to now being a drag on demand growth and the gas market balance. Rising storage surpluses and record low prices in Europe and Asia, along with relative strength in the U.S. national benchmark prices at Henry Hub, have turned the economics upside down for U.S. exports and led to widespread cancellations of contracted cargoes. Feedgas deliveries and cargo liftings at Lower-48 terminals both have plummeted to the lowest levels since early 2019, despite domestic liquefaction capacity climbing by more than 4 Bcf/d since then. Moreover, the dynamics that led to the current predicament are likely to persist at least through injection season and potentially even beyond that to a certain extent. Today, we provide an update on how cargo cancellations have affected U.S. gas demand for exports, overall and at individual terminals.
It’s Sure Been A Cold, Cold Winter – Natural Gas Storage Fears Spike Up Prices
Two short years ago at the end of March 2012 natural gas marketers despaired of ever finding a home for surging natural gas production after a historically mild winter left underground gas storage bursting at the seams. A week later in April 2012 natural gas CME NYMEX Henry Hub prices dipped below $2/MMBtu and producers started shifting their drilling rigs to wet gas and liquids plays in search of higher returns. Fast-forward to today and we move towards the end of another record winter – this time a freezing cold one. Last week gas prices climbed over $6/MMBtu and the gas storage gauge will likely be close to empty (metaphorically speaking) by the end of March. Today we provide an update on this winter’s gas market.
