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Bad News For U.S. Producers As Natural Gas Prices Plunge

Natural Gas

1. US Gas Producers Face Difficult Decisions as Prices Drop

- For the first time since September 2020, Henry Hub natural gas futures plunged below $2 per mmBtu this week before bouncing back to a more palatable level of $2.4/mmBtu.

- The combination of a relatively mild winter in key US consumption hubs and excess domestic volumes on the back of the Freeport LNG outage depressed gas futures that only six months ago were trading above $10/mmBtu.

- US shale gas producer Chesapeake Energy was one of the first to claim they would be reducing their active rig fleet after the price plunge, with others expected to follow suit.

- Aggravating the pricing issue, many producers let their usual gas price hedges run out (EQT expects a $4.6 billion loss on derivatives for 2022) and thus are more exposed to current prices.

2. Attractive LNG Prices Set to Trigger Asian Demand

- Asian LNG buying activity is expected to increase over the upcoming months as the continent’s benchmark JKM prices fell below $15 per mmBtu recently, the lower level in almost two years.

- The imminent restart of Freeport LNG might depress prices even further to $10-13/mmBtu, leading many Asian buyers that halted their purchases last year to start buying again.

- India is a case in point with state-owned GAIL and GSPC issuing separate buying tenders, whilst Thailand’s PTT was rumored to have closed its tender for three cargoes between $14.5-15/mmBtu.


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