Falling U.S. Natural Gas Prices Help Lower Inflation

• As natural gas prices in the U.S. fall, consumers are experiencing some relief from inflationary pressures.
• Natural gas accounts for around 25% of household energy needs in the U.S., which means significant savings for consumers when prices drop.
• Inflation in the U.S. eased in January for a seventh consecutive month, but the pace of decline seems to have started to level off.

Falling U.S. benchmark natural gas prices are easing some of the inflationary pressure in America as natural gas makes up around 25% of household energy needs, the AP notes.

The benchmark U.S. natural gas prices have slumped to the lowest in years in recent weeks due to a mild start to January, consistently high supply, and an outage at the Freeport LNG export facility, which has raised the volume of gas available for domestic use since the fire at the plant in June last year.  

The Henry Hub gas prices have slumped to around $2.50 per million British thermal units (MMBtu), down from $6 per MMBtu in the middle of December and more than $9 per MMBtu in August 2022.  

The current price is at the lowest in two years in nominal terms. But adjusted for inflation, the U.S. natural gas prices are at a 30-year-low, according to estimates by Reuters’ senior market analyst John Kemp. 

In its Short-Term Energy Outlook (STEO) for February, the Energy Information Administration slashed its Henry Hub spot price forecast by 30% to $3.40 per MMBtu for 2023, down from $4.90 per MMBtu in the January forecast. The Henry Hub natural gas price averaged $6.42 per MMBtu last year.  

The revised outlook for Henry Hub prices is a result of significantly warmer-than-normal weather in January that led to less than-normal consumption of natural gas for space heating and pushed inventories above the five-year average, the EIA said. 

U.S. natural gas inventories will end the withdrawal season at the end of March 16% above the five-year average, the administration noted.  

Inflation in the U.S. eased in January for a seventh consecutive month, but the pace of decline seems to have started to level off, the latest official data showed earlier this week. The still sticky inflation may need further interest rate hikes from the Fed to see price pressures on a sustained downward path.  

By Tsvetana Paraskova for Oilprice.com

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