Why U.S. natural gas prices "could" average more than $3.50

[dan_s]

Natural Gas in U.S. storage facility was over the 5-year average for this time of year by 226 Bcf on November 8, 2024, but it is not a "glut" of natural gas. The word "glut" is used by people that hope to keep natural gas price low.

Why I believe that we could see U.S. natural gas average $3.50/MMBtu in 2025: Because demand for natural gas is MUCH HIGHER than it was five years ago. Just since the end of 2023, U.S. LNG export capacity has increased by 3.3 Bcf per day and the real number is over 5.3 Bcf when you include the fact that the large LNG export facility at Freeport, Texas (over 2.0 Bcfpd design capacity) was shut down due to a fire last winter.
> NGas burned to generate electricity increases each year.
> More U.S. homes and businesses burn natural gas for space heating each year.
> Demand for LNG is HIGH. Natural gas prices were $13.58/MMBtu in Asia yesterday and they were $14.55/MMBtu in Europe yesterday.
Today, natural gas in storage is at the bottom of the 5-year average measured against demand.
-----------------------------------
Winter’s Chill Exposes Cracks in U.S. Gas Market
By Irina Slav - Nov 19, 2024, 5:00 PM CST

> U.S. natural gas producers have delayed drilling due to persistently low prices.
> Limited new gas storage capacity may leave the market vulnerable to demand spikes, especially during extreme weather events.
> Rising U.S. LNG exports to Europe, driven by colder temperatures and reduced Russian gas supply, could tighten domestic supplies further and contribute to price volatility.

Winter is near, and so is peak natural gas demand in the northern hemisphere. For the world’s largest natural gas producer, this could mean greater price volatility and potential supply tightness.

The predictions come from Wood Mackenzie, which listed in a recent article a total of five factors affecting the natural gas market in the United States this winter. Control of supply is at the top of the list as natural gas producers respond to persistently low market prices for their commodity. Natural gas prices have been depressed for over a year, and earlier in 2024, producers had enough of that and started delaying well-drilling plans.

The effect of this decision will take a while to manifest due to the fact that a lot of the natural gas produced in the U.S. comes out of oil wells in the shale patch as associated gas. Yet, Wood Mac predicts some tightness when winter demand kicks in—if it kicks in.

The energy consultancy lists the buildout in wind and solar as a reason for potential surprises in natural gas demand growth this winter. Because of this buildout, the pattern of demand fluctuations this winter could be different from the usual one, Wood Mac analysts said, with new demand surges when wind and solar cannot perform.

This raises the question of natural gas in storage and whether there is enough of it to cover such surges. Here, the U.S. has a problem because building new gas storage capacity has not been a priority for anyone, it seems.

“Storage capacity should act as a shock absorber at times of heightened demand or reduced supply. In recent years, however, little or no new storage has been commissioned,” Wood Mac’s analysts wrote, only to add that interest in storage capacity tends to spike ahead of summer and winter peak demand seasons. The spikes, it appears, have not been high enough to actually motivate adding storage capacity. Per Wood Mac, there is some 50 billion cu ft in new capacity that has been planned—and that is a lot less than the pace at which the gas market in the country has expanded, potentially creating the risk of a shortage in case of a sudden spike in demand.

According to the firm, such sudden spikes are more likely than they were in the past due to climate change, which, they say, is making extreme weather more extreme than before, affecting energy demand. The report cites the so-called Arctic blast that swept the Lower 48 this January, even though the month as a whole was milder than usual. That blast led to a natural gas demand spike to 163 billion cu ft daily at one point.

The fifth factor affecting this winter’s supply and demand for natural gas in the U.S. is, of course, liquefied natural gas and the impact of its exports on domestic prices, which in turn affect demand. U.S. LNG exports are quite likely to increase in the coming weeks as Europe’s appetite for the superchilled fuel returns with temperatures dropping. In the first half of the year, this appetite was muted because there was plenty of gas in storage, demand destruction had tempered prices, and spring was on the way.

In the first half of the year, U.S. exports to Europe were weaker than last year. Now, with the last conduit for Russian pipeline gas to Europe about to be cut off by Ukraine’s Naftogaz after the expiry of the transit contract, Europe will need to fill the gap. As suggested by Commission President Ursula von der Leyen, the filling would likely come from U.S. LNG as the EU seeks to signal to Trump that it would be happy to raise imports of U.S. energy to possibly avoid tariffs on European exports to the United States.

[dan_s]

< U.S. natural gas production is currently ~113 Bcf per day (per EIA's most recent Short Term Energy Outlook report), but does go down during winter storms due to "well freeze offs".

Natural gas production per EIA's recent STEO report:. Marketed U.S. natural gas production in our forecast averages 113 billion cubic feet per day (Bcf/d) in 2024. Production in 2024 is relatively unchanged from 2023, a contrast to the production growth in the previous three years, as low natural gas prices curtailed production in some regions. We expect U.S. marketed natural gas production to increase by 1% next year, averaging 114 Bcf/d, led by a 6% increase in the Permian region.