Domestic gas prices continue their volatile streak in 2023, Rystad energy analyst Ade Allen said in a North American LNG and gas market update sent to Rigzone on Tuesday.
“Henry Hub March futures fell below $2/MMbtu last Wednesday, but settled above the threshold in late trading,” Allen said in the update.
“The contract expired last Friday, so there was further volatility, expiring at $2.451/MMbtu. By inference, the market does not seem convinced that $2/MMbtu Henry Hub reflects an accurate value for natural gas domestic,” Allen added.
In the update, Allen noted that the price drop serves as a signal for producers to reduce production growth to sustainable levels.
“Forecasts for production growth remain too high for the domestic market to absorb, coupled with high storage levels following the mild winter, meaning prices continue to decline,” Allen said in the update .
Elevated storage master controller
One of the main drivers of elevated storage has been the south-central region, according to Allen, who stated in the update that “the last storage report saw a minimum withdrawal of five billion cubic feet, bringing absolute levels at 926 billion cubic feet (up 33.6 percent from five-year levels).
“These levels are considered dangerously high as we head into the shoulder season, which could prove inauspicious for high regional storage,” Allen added in the update.
“The only caveat is that salt storage in South Central can cycle relatively quickly, meaning the lack of withdrawals this winter could be offset by larger withdrawals this season or later,” Allen said.
Allen noted, however, that the regional weather forecast looks mild with above-average temperatures for the next few days, “so it is unlikely that there will be an event that causes large retreats this season.”
Imbalance in the south center
The imbalance in South Central is due to regional production growth, driven primarily by Haynesville volumes, Allen said in the update.
“As of 2023, there were a few factors driving growth in Haynesville; rig activity in the basin (currently operating ~71 rigs), expansion in average takeaway capacity (+5,500 million cubic feet per day sanctioned) and a large concentration of private operators not constrained by restricted growth rates,” Allen said.
“However, these are supply-side factors. Minimal demand growth is expected to absorb any incremental production growth. Freeport LNG has been offline to start the year, although with approvals initials received last week we expect to increase in the next 60 days,” Allen added.
“Our forecast does not foresee incremental LNG export capacity in 2023, and other demand sectors are expected to remain flat year-on-year. Due to these variables and recent guidance from regional producers, we expect activity to slow and production to decline in 2023,” Allen continued.
Expect volatility
In a separate North American LNG and gas market update sent to Rigzone last week, Allen noted that balances through 2023 will not be linear and that market participants can expect continued volatility.
“As is the nature of gas markets, the only certainty is uncertainty, and the scenarios will only expand.
However, we believe some key fundamentals will develop,” Allen said in this update.
“First, our current outlook continues to project incremental supply growth, particularly in late 2023. We expect gas demand to average close to 2022 levels, even without the strong waves of heat and the prolonged dry season in the Pacific region that was last observed. year,” Allen added.
“But even with increased demand, gas supply growth may present an oversupply scenario as early as the second quarter of 2023. Our near-term outlook continues to indicate bearish sentiment, despite the restart of Freeport LNG. Even with the addition of structural volumes online from Freeport LNG as early as March, a rebound in prices is nothing more than a pipe dream,” Allen said.
Henry Hub
At the time of writing, the Henry Hub price was trading at $2.76/MMbtu. The commodity fell from a close of $6.97/MMbtu on December 15, 2022 to a close of $2.073/MMbtu on February 21. The price rebounded to a close of $2.74/MMbtu on February 28.
To contact the author, please send an email andreas.exarcheas@rigzone.com
