Quick Look:
- Natural gas prices at Henry Hub dropped by 20% from January to June 2024, hitting a low of $1.49/MMBtu in March.
- An unusually mild winter in 2023 reduced the demand for natural gas for heating, leading to lower prices.
- Natural gas production peaked in late 2023 but dropped significantly in early 2024 due to lower prices and Winter Storm Heather.
- High production and low consumption made storage levels 13% higher than the previous year, keeping prices suppressed.
In the ever-fluctuating world of energy commodities, the story of natural gas prices in the U.S. for the first half of this year reads like a thrilling rollercoaster ride. From January to June, the average monthly wholesale spot natural gas price at the U.S. benchmark Henry Hub took a significant plunge, falling by 20% to $2.56 per million British thermal units (MMBtu). This data, sourced from Refinitiv Eikon, highlights a striking drop from $3.18/MMBtu in January to an eye-watering low of $1.49/MMBtu in March—the lowest inflation-adjusted price seen since at least 1997. Furthermore, prices for these specific months were at record lows from February through April 2024.
A Mild Winter and Its Chilling Effects
The narrative of falling prices is interwoven with several factors, not least the unusually mild winter of 2023. As the year drew to a close, warmer-than-usual temperatures meant less natural gas was consumed for space heating. This mild weather led to a slack in demand, a key component in the price equation. As 2023 turned 2024, these weather conditions continued suppressing natural gas prices.
The U.S. witnessed record natural gas production during this period, further contributing to the price decline. Production figures peaked at an average of 106 billion cubic feet per day (Bcf/d) in November and December, setting new benchmarks. Yet, this bounty of production occurred just as demand for space heating fell due to the warm weather, creating a supply glut that pushed prices down.
Production Peaks and Valleys
The first half of 2024 presented a different scenario. Natural gas production decreased, especially after the harsh Winter Storm Heather struck in mid-January, compounded by the continued low prices. Production levels fell to 101.6 Bcf/d by April, marking the lowest output since December 2022. This drop in production meant less gas was available for storage, with May and June injection rates falling 11% and 31% below their respective five-year averages. Despite these reductions, overall inventories remained robust, hovering above the five-year range.
Consumption Trends Amidst a Warm Winter
Consumption trends mirrored the mild winter conditions. December 2023 set records as the warmest December in many U.S. locations, leading to a significant drop in natural gas consumption. The residential and commercial sectors saw an average combined consumption of 34 Bcf/d in December, down 19% from the previous year. This reduced consumption during a typically high-demand period added another layer of complexity to the natural gas pricing landscape.
Storage Levels and Their Impacts
The high levels of production and the subsequent low levels of consumption had a predictable effect on storage. Less gas was withdrawn from storage inventories during the winter heating season of 2023–24, leading to unusually complete storage levels. According to the U.S. Energy Information Administration’s Weekly Natural Gas Storage Report, U.S. working natural gas inventories averaged 13% higher than the year-ago average and nearly 18% more than the five-year average. These complete storage levels were crucial in keeping prices low throughout the heating season.
The Current Landscape and Future Outlook
As we move into 2024, the natural gas market continues grappling with these dynamics. Production has decreased, and prices have recovered slightly from February and March lows. However, they still linger near historic lows. The most recent data indicates that for the week ending July 12, 2024, U.S. storage levels were 17% higher. This is compared to the five-year average for this time of year. This suggests the market may continue to experience suppressed prices. Suppressed prices will persist unless there is a significant shift in either supply or demand. Over the past six months, natural gas prices at Henry Hub have shown the intricate dance between supply, demand, weather, and storage levels. Looking ahead, market participants must stay vigilant and monitor these key factors. They must navigate the potentially volatile waters of natural gas pricing carefully.
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