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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. 

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Record-High U.S. Production Weighs on Natural Gas Prices

  • Record temperatures in Europe and North America extended the gas storage refill season, leading to high inventories.
  • Natural gas demand decreased due to warmer weather, an industrial slowdown in Europe, and record U.S. production and LNG exports.
  • Futures and options market winter premiums have diminished, contributing to a drop in Europe’s natural gas prices and bearish trends in the U.S. and Asian markets.

The warmest autumn in the northern hemisphere in nearly a century and a half has pushed natural gas prices in the U.S., Europe, and Asia lower at the start of the winter.   

Prices are also weighed down by record-high U.S. production, record-high inventories, and weak industrial demand in Europe, as well as tepid consumption and fuller storage sites in Asia.  

Temperatures in Europe and North America were near-record levels in October, and the warmer-than-usual weather continued in North America in November, according to weather data compiled by Reuters market analyst John Kemp

The record temperature anomalies in those months extended the refill season for gas storage. This allowed Europe and the United States to enter the winter heating season with above-average—and, in Europe’s case, record-full—inventories.

Weaker natural gas demand due to the above-normal temperatures, an industrial slowdown in Europe, and record-high U.S. production and LNG exports are weighing on natural gas prices worldwide. 

After the record price swings and volatility last year, traders have now turned bearish on natural gas in the U.S. and Europe alike. 

Ample inventories and muted demand so far this winter heating season have turned portfolio managers bearish on European natural gas for the first time since September, and benchmark prices are now down to a four-month low.

High inventories, eased fears of supply shortages, weak demand, and increased confidence that Europe could go through the winter without major supply disruptions have all led to a drop in Europe’s natural gas prices in the past few weeks. The winter premiums in the futures and options market have all but vanished.

The front-month Dutch TTF Natural Gas Futures Dutch, the benchmark for Europe’s gas trading, settled at $36.22 (33.19 euros) per megawatt-hour (MWh) on Friday, as prices fell for another week amid forecasts of warmer weather this week, stable supply of pipeline gas from Norway and LNG imports, and higher wind power generation. 

In the United States, the benchmark U.S. natural gas prices slumped by 10% early last week amid high inventories and forecasts of warmer-than-usual weather, suggesting very light demand for space heating.

 

Adding to the bearish factors are the higher-than-average inventories at the start of the winter heating season. The United States entered the heating season with the highest natural gas in storage since 2020, the U.S. Energy Information Administration (EIA) said earlier this month. 

Moreover, U.S. dry natural gas production in the Lower 48 states reached a record monthly high of 104.9 billion cubic feet per day (Bcf/d) in November 2023, per data from S&P Global Commodity Insights, cited by the EIA. U.S. output was up by 3.3%, or 3.3 Bcf/d, between January and November 2023, compared to the 2022 annual average.

In its December 2023 Short-Term Energy Outlook, the EIA expects that total U.S. natural gas production will continue to increase in 2024 and rise by 1.2% compared with 2023. The EIA lowered its forecast for natural gas prices this winter by more than 60 cents, to $2.80 per million British thermal units (MMBtu), compared with the November STEO forecast, due to recent increases in production and high natural gas storage inventory levels.  

U.S. natural gas prices fell for a sixth consecutive week in the week to December 15. Short positions in natural gas futures jumped in the week to December 12, and the net short positions in the commodities complex were led by natural gas, Ole Hansen, Head of Commodity Strategy at Saxo Bank, said on Friday. 

Prices in Asia were also on a downward trend last week despite a cold snap in China. 

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The average LNG price for January delivery into Northeast Asia crumbled by 18% to $12.70 per MMBtu to a four-month low last week, down from $15.50 in the previous week, industry sources told Reuters.

“Barring any unplanned outages for LNG or pipelines, the combination of high storage levels and increased wind power generation in Europe will exert downward pressure on (Dutch gas hub) TTF prices, Northwest Europe LNG, and consequently JKM,” Siamak Adibi, principal consultant at consultancy FGE, told Reuters. 

By Tsvetana Paraskova for Oilprice.com

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