Natural Gas Prices - May 17

[dan_s]

Trading Economics
"US natural gas futures rose toward $2.60/MMBtu, the highest in four months, after EIA reported a smaller-than-expected storage build. US utilities added 70 billion cubic feet (bcf) of gas into storage last week, below market expectations of a 76 bcf increase. However, the report also showed US gas stockpiles are 30.8% above the 5-year average. On the other hand, US gas production is down about 10% so far in 2024 after several energy firms, including EQT and Chesapeake Energy, delayed well completions and cut back on other drilling activities. Looking ahead, weather forecasts indicate a shift to warmer-than-normal temperatures until May 31, leading to increased gas consumption by power generators to meet electricity demand for air conditioning. Also, gas flows to major US LNG export plants rose in May from April, with the return to full service of Freeport."

JUL24 NYMEX contract at $2.747/MMBtu at the time of this post

Comments below are from HFI Research late yesterday:

Wow, what a turn of events in the natural gas market. With Lower 48 production still hovering around ~98 Bcf/d and power burn demand picking up, the cash market has meaningfully tightened and prompt gas futures are trading near $2.50/MMBtu.

Readers, however, need to keep in mind that while the prompt gas futures have rallied meaningfully (June contracts), July contracts are just up from $2.37/MMBtu or ~13%. The steep contango we saw in the curve just a few weeks ago is vanishing, and the market is now testing at just what price level we see a production response.

Remarkable Discipline... So Far

Lower 48 gas production remains dismal despite the rebound we are seeing in natural gas prices. The steep drop is catching some traders by surprise as producers are currently sidelining a lot of production in the form of TILs (turn-in-line wells). Typically, with a lead time of 4-6 weeks, producers can bring TILs onto production, so we could see a meaningful pick-up in production by late June.

In addition, the announcement by Chesapeake Energy and EQT in March is having a more prolonged impact than what we initially believed. EQT had mentioned that the production curtailment would only last in March, but judging by the Northeast gas production volume, it still exists today.
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MY TAKE: The number of rigs drilling new gas wells is too low to significantly increase production. Upstream companies should lock in good prices before they complete more gas wells.