• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 3 hours GREEN NEW DEAL = BLIZZARD OF LIES
  • 22 hours Could Someone Give Me Insights on the Future of Renewable Energy?
  • 22 hours How Far Have We Really Gotten With Alternative Energy
  • 23 hours The United States produced more crude oil than any nation, at any time.
  • 1 min "What’s In Store For Europe In 2023?" By the CIA (aka RFE/RL as a ruse to deceive readers)
  • 6 hours Bankruptcy in the Industry
Are Rising Gas Prices Driving The Fed Toward More Rate Hikes?

Are Rising Gas Prices Driving The Fed Toward More Rate Hikes?

Rising gasoline prices have significantly…

Inflation Concerns Grow As U.S. Diesel Market Tightens

Inflation Concerns Grow As U.S. Diesel Market Tightens

Low distillate inventories in the…

Hot Weather Sends Ripples Through Natural Gas Markets

Hot Weather Sends Ripples Through Natural Gas Markets

With frequent daily movements of…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

More Info

Premium Content

Natural Gas Futures Market’s Wild Swings Set To Continue

  • Natural gas storage capacity hasn't increased at a pace with production, which has been soaring in the past decade.
  • Adjusted for inflation, natural gas prices slumped last week to their lowest level since the New York Mercantile Exchange launched trade in U.S. natural gas futures in 1990.
  • Until storage capacity rises, U.S. natural gas producers will continue to respond to prices by either lowering or boosting output.
Chesapeake

Despite the currently low U.S. natural gas prices and the huge shale gas resources, the futures market has seen wild swings in recent months.

Record 2023 gas production and one of the warmest winters for decades may have sunk the U.S. benchmark gas price at Henry Hub to the lowest in decades. Still, those factors haven't removed a key risk of sudden spikes and dips. Volatility is here to stay and even increase in the coming years, according to Wood Mackenzie—at least until the U.S. expands its natural gas storage capacity.

Lowest Gas Price in Decades

U.S. natural gas prices tumbled earlier this month to around $1.55 per million British thermal units (MMBtu)—their lowest level since 1995, except for the Covid-induced crash in energy prices in 2020.

Adjusted for inflation, natural gas prices slumped last week to their lowest level since the New York Mercantile Exchange launched trade in U.S. natural gas futures in 1990.  

The Henry Hub daily natural gas price averaged $1.50 per MMBtu on February 20—the lowest price in inflation-adjusted dollars since at least 1997, according to data from Refinitiv Eikon reported by the EIA. High natural gas production, low natural gas consumption, and high inventories contributed to prices declining for much of 2023 and the first two months of 2024, the Energy Information Administration said in a note this week. Related: Crescent Point Energy Lifts Base Dividend as It Turns Profit for Q4

Abundant supply should keep the equilibrium U.S. natural gas price subdued, rising only slowly out to 2050 and beyond, Ed Crooks, Wood Mackenzie's Vice-Chair Americas, wrote in an analysis last week.

Volatility Risk

"But while the outlook for average gas prices remains stable, the potential for volatility around those averages has increased," Crooks said, noting that "It is likely that price volatility will persist until there is a substantial increase in gas storage capacity in the US."

Natural gas storage capacity hasn't increased at a pace with production, which has been soaring in the past decade. As a result, producers are responding to price signals by either boosting or limiting production, which has led—in cycles—to lower or higher natural gas prices, respectively.

The response of the U.S. shale patch has been reactive—companies ramp up or curtail drilling and production activity according to the price, but the effect is being felt months later and is either compounded or limited by seasonal demand. Inevitably, volatility follows. Extreme events such as winter storms have also led to spikes in gas prices over the past few years.

The answer to heightened volatility and price swings in both directions is more storage facilities, according to Eugene Kim, Wood Mackenzie's research director for Americas gas.

"This greater volatility is a result of the US market having expanded significantly without an equivalent expansion in storage capacity," Kim said.

"We have seen a few companies moving to take advantage of these price movements by investing in storage, but it's not enough."

Yet the incentive to build more storage capacity has been muted in recent years because the spreads between winter and summer prices have been narrow, also because of the ability of the shale patch to be partly flexible and match seasonal demand, according to WoodMac.

Gas Producers Lower Output Amid Depressed Prices

Until storage capacity rises, U.S. natural gas producers will continue to respond to prices by either lowering or boosting output.

Amid the current glut and prices at their lowest in decades, some of the top gas producers have already announced they would reduce output this year.

Antero Resources, for example, released one drilling rig in December 2023 and released one completion crew in February 2024 as a result of the low gas prices. 

Comstock Resources, for its part, plans to reduce the number of operating drilling rigs it is running from seven to five.  

EQT Corporation, currently the largest U.S. natural gas producer, lowered earlier this year its production range guidance "as a response to the price environment we're in and wanting to make sure there is flexibility," CFO Jeremy Knop told the Q4 earnings call in February.

"The market is asking for not only production curtailments, but also activity reductions," Knop said.

ADVERTISEMENT

Chesapeake Energy, poised to become the top U.S. gas producer after the planned merger with Southwestern Energy, will be reducing its production in 2024, too.

Chesapeake plans to limit its "turn-in-line count to 30 to 40 wells with the majority having already occurred in January and February, drop two frac crews, leaving one frac crew in each basin and drop two rigs, resulting in four rigs in the Haynesville beginning in March and three rigs in the Marcellus beginning midyear" CEO Nick Dell'Osso said on the earnings call last week. 

"Today, the market is clearly oversupplied," Dell'Osso noted.

Without additional storage, producers are bound to continue reacting to oversupplied or undersupplied markets with production adjustments.

"The cure for low prices is low prices, and the cure for volatility is volatility. Ultimately, we expect more storage to get built to arbitrage away the extremes. But until then, the potential for more price volatility will remain," WoodMac's Crooks wrote.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Mamdouh Salameh on March 01 2024 said:
    Natural Gas Futures Market’s Wild Swings, price volatility and the chaotic state of the market will soon become something of the past.

    The reason s that the 7th Gas Summit Meeting of the Gas Exporting Countries Forum (GECF)currently meeting in Algiers, the capital of Algeria is going to be a turning point for the global gas market and the economics and geopolitics of the world. The GECF's 12 members and 7 observer countries who account for 63% of proven global gas reserves will discuss and probably decide on regulating the gas market by coordinating their production and exports to ensure stability of both the market and prices and also defend the national interests of its members.

    They intend to eventually create an OPEC-like organization for gas to oversee the gas market within the next 4-5 years.

    Among the GECF members are Russia, Iran and Qatar accounting for the world's largest, second-largest and third-largest proven gas reserves in the world respectively.

    Global demand for gas particularly LNG is projected to rise by 50% between 2024 and 2034 while global gas trade is projected to rise from 450 million tons (mt) in 2023 to an estimated 680-700 mt by 2040 or 51%-55%.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News