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.
U.S. natural gas prices have plumbed historical depths this year. As we wrote in our I’m Tore Down blog two months ago, daily Henry Hub prompt futures settles from April through September 2019 (black line in Figure 1) averaged $2.41/MMBtu, the lowest seasonal average since the late 1990s, according to CME/NYMEX data from the Energy Information Administration (EIA). That trend continued in October, when prompt futures averaged $2.33, again at a two-decade low. Prices rallied somewhat earlier in November to as high as $2.862/MMBtu, as the market took a cue from what were at the time bullish, much-colder-than-normal weather predictions for late November and early December.
But those expectations have since fizzled, as weather didn’t materialize quite as expected and the near-term weather outlook has moderated considerably. The December 2019 contract expired on November 26 at $2.47/MMBtu, 25 cents, or 9%, lower than where it had been at the beginning of November. The January 2019 contract settled just above $2.50 on its first day at the front of the curve, on November 27, but then proceeded to post the biggest single-day loss since late January 2019, settling 22 cents lower at $2.281/MMBtu on November 29 (black line in dashed red oval). Not only is that a far cry from last year’s November-traded average of $4.05 and more than $1 below the November 2018 low point (dark-blue line in dashed red oval), but it’s the lowest settlement in the month of November since 2015 (yellow line in dashed red oval).
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