Continued low
natural gas prices lead to more curtailment. As always, prices are lowest for the longest in Appalachia, even with some pipeline relief due to bringing the Mountain
Valley Pipeline partially into service. The Waha Hub in West Texas has been
seeing negative pricing on a record number of occasions. With Henry Hub gas
futures hovering at $2 per MMBTU, there is little profit realized.
Decent pricing
in April and May resulted in normal output but summer consumption, despite hot
weather, has not been enough to keep the glut down. As the autumn shoulder
season approaches, cuts will remain and be extended unless pricing improves,
which seems doubtful. One of the biggest producers EQT “has embedded around
90 billion cubic feet equivalent of strategic curtailments this fall, which the
company will carry out if the market remains depressed.” That adds up to
1BCF/day for the whole quarter. That is a huge amount of curtailment. Apache is
planning to curtail about 90MMCF/day, up from 78MMCF/day in the 2nd
quarter. According to Reuters: “Chesapeake Energy, which will be the largest
U.S. gas producer after it completes its merger with Southwestern Energy, plans
to defer some well completions while the gas market is weak, biding its time
until supply and demand imbalances correct.” Other large natural gas
producers including Antero, EOG, and Coterra are cutting as well.
U.S. natural
gas output for the full year 2024 is expected to be at 103.3 BCF/day according
to EIA’s August forecast. That would be 0.5 BCF/day less than the 2023 output of
103.8 BCF/day. This is a 0.2 BCF/day change from the previous 2024 forecast in
July of 103.5 BCF/day.
Relief is expected to eventually come from new LNG demand and normal winter demand increases. However, with gas storage still at the top of five-year averages after being above it for much of the year, it will take extended cold weather to bring down prices this winter. LNG demand is expected to rise to 12.2 bcfd in 2024 and 14.3 bcfd in 2025, up from a record 11.9 bcfd in 2023, according to EIA’s July outlook. That is a 2.1 BCF/day rise in LNG demand that should stabilize prices for producers in 2025 and likely beyond as LNG exports continue to rise beyond 2025.
EIA predicts that
natural gas burned for electricity will be at 46 BCF/day in August, down 2%, or
about 1BCF/day from a very hot July. They predict winter demand will bring up
Henry Hub prices to over $3 per MMBTU beginning around November. They also
noted that low natural gas prices are also keeping residential electricity
prices down (thank you). The high natural gas prices in 2022 and part of 2023
were a reflection of Russia’s invasion of Ukraine and did not reflect to
regional price dynamics, just the global price dynamics. It was basically a
free ride for U.S. natural gas producers and a chance to plan for the future
where prices were back to normal low margins and that has indeed happened. EIA
expects the avg. 2024 natural gas price to be $2.3 per MMBTU and the asvg. 2025
price to be $3.3 per MMBTU. Thus, it seems if producers can weather the storm
for the next few months, they should be rewarded with better pricing in 2025.
References:
U.S. Natural Gas
Producers Plan Further Output Cuts as Prices Plummet. Reuters, Pipeline &
Gas Journal. August 7, 2024. U.S.
Natural Gas Producers Plan Further Output Cuts as Prices Plummet | Pipeline and
Gas Journal (pgjonline.com)
US natgas output to
decline in 2024, while demand rises to record high, EIA says. Reuters. July 9,
2024. US
natgas output to decline in 2024, while demand rises to record high, EIA says |
Reuters
Energy Information
Administration. Short-Term Energy Outlook. August 6, 2024. Short-Term Energy Outlook - U.S.
Energy Information Administration (EIA)
Energy Information
Administration, Weekly Natural Gas Storage Report for week ending August 2,
2024. Released: August 8, 2024. Weekly Natural Gas Storage Report - EIA
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