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Heat of the Moment - High Gas Production, Historically Low Heating Demand Keep a Lid on Prices

So far this winter, front-month CME/NYMEX natural gas futures have fallen, risen and fallen again but, until their most recent dip, generally remained within the same $2.30-to-$3.30/MMBtu range where they have been lingering since mid-2023. With production sustaining near-record levels, LNG export volumes down from the winter highs, and temperatures back to normal, the supply of gas remains plentiful — a bearish scenario. In today’s RBN blog, we look at why there’s been a lid on natural gas prices — and the odds that the situation might change before the rapidly-approaching end of the winter season.

LNG exports have been the main driver of increased demand for U.S.-produced natural gas over the past decade, and the next tranche of planned facility builds has been hotly anticipated by producers. However, while producers once hoped that the upward march of demand would resume in 2024, they must now wait until 2025 before seeing substantial increases. Golden Pass LNG in southeastern Texas, the Qatar Energy/ExxonMobil project that had been expected to start up in late 2024, now won’t be coming online until early 2025 and the market will likely need to wait until at least November of this year before Venture Global’s Plaquemines LNG in southeastern Louisiana begins taking feedgas.

Despite the lag in incremental LNG demand, gas production inched steadily higher throughout last year, rising from an average of 100.8 Bcf/d in January 2023 to 105.9 Bcf/d in December. This rise occurred across many producing regions. Permian Basin production led the charge, surging from an average of 16.2 Bcf/d in January to 18.2 Bcf/d in December — a jump of more than 12%, accounting for about two-fifths of the overall increase in the Lower 48. Although crude prices have receded from the highs of 2022, WTI futures remained above $70/bbl for most of the past year, which has been enough to keep production in the crude oil-focused Permian healthy. New gas pipeline capacity helped out: historically, Permian gas production has often been constrained by limited takeaway capacity to markets (see Some Beach, Part 2), so the recent capacity additions on Kinder Morgan’s Permian Highway Pipeline (PHP) and WhiteWater Midstream’s Whistler Pipeline abetted the increase. Similarly, we expect Permian production to have a banner year in 2024 as the 2.5 Bcf/d multi-owner Matterhorn Pipeline enters service, enabling even more gas to be transported to market. 

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