Analysts at Fitch Solutions Country Risk and Industry Research announced in a new report that a change in fundamentals has led to a “significant” change in their 2023 natural gas price outlook.
“Weak domestic demand related to the weather and market concerns about an impending economic slowdown [are] conspiring to lower prices from recent highs,” the analysts said in the report, which was sent to Rigzone last Friday.
“We have revised down our natural gas price forecast for the United States and Europe due to weak price behavior to start the year, but we have a bullish view on prices from current spot price levels as fundamentals remain tight and the prospect of supply disruptions from Russia and renewed Chinese LNG consumption pose material risks to 2023,” the analysts added.
“Natural gas storage in both the U.S. and Europe remains well above historical averages for this time of year. This limits the prospect of a near-term reversal in higher prices as there is no ‘expect weather-related demand spikes to increase demand in neither region,” the analysts continued.
In the report, analysts revealed that they now expected Dutch FTT front month prices to reach an average of EUR 70/MWh in 2023, which they noted was down 44 percent from their forecast earlier, and that UK NBP’s opening month prices averaged 160 GBp/therm, which they described as down 41 percent from their previous projection.
Analysts also revealed in the report that they now expect Henry Hub’s annual price to return to 2021 levels this year.
“In our view, the first month price will average $3.6/MMBtu in 2023, which is a 45 percent decline from the $6.5/MMBtu recorded last year,” they stated analysts in the report.
“The US natural gas market has seen a strong sell-off between January and February 2023, with the price declining by more than 50 percent. There were several factors driving the sell-off,” the analysts added.
“First, the U.S. Northeast experienced a milder-than-expected winter, limiting residential and commercial heating gas demand. Second, the domestic gas market was well-supplied due to a level of shale gas production, driven by the Marcellus, Permian and Haynesville, and lower demand from the LNG industry amid the delay in the partial resumption of Freeport LNG operations from January 2023 . until February/March 2023,” the analysts said.
US NatGas futures continue to fall
In a market note sent to Rigzone on March 29, Emily McClain, vice president of Gas Markets Research at Rystad Energy, noted that US natural gas futures “continue.”[d] fall” last week, “returning to the sub-$2.00/MMBtu range.”
McClain noted that this was “triggered by an extension of the steady gas production trend of recent winter seasons, coupled with persistent mild weather that led to sustained declines in heating demand, adding downward pressure on short-term natural gas prices.”
“While some cold days are expected in the coming weeks for the Pacific and Mountain regions, short-term weather forecasts indicate near-normal temperatures for the next two weeks, subjecting gas to lighter demand conditions in first two weeks of April”. McClain said in the memo.
“Mild weather has helped support low storage pressures during the withdrawal season, pushing gas inventories more than 20 percent above the five-year average for the week ending in March 17. While we wait for this [last] week to show another minimal drawdown, storage injections should take place next week, further easing US gas prices,” Rystad’s vice president added in the note last week.
In the note, McClain also stated that there is upside potential for prices “as Freeport LNG advances feed gas deliveries and subsequent LNG exports in the coming weeks.”
“The facility has managed to achieve feed gas levels close to 1.0 Bcfd in the second half of March and has been increasing,” McClain said.
“Now that the plant has received full approval to move forward with production of the three trains, the increase to levels above 2.0 Bcfd is only a matter of time. Freeport LNG and all other facilities maintaining levels of robust production, monthly US LNG exports are expected to exceed 12 Bcfd for the remainder of the year,” McClain added.
The Henry Hub price closed below $2.0/MMBtu on March 29, at $1.91/MMBtu, before returning above $2.0/MMBtu on March 30. The commodity closed at $9.68/MMBtu on August 22, 2022 and was at $6.97/MMBtu on December 15, 2022.
Henry Hub’s highest 2023 year-to-date close came on Jan. 4 at $4.17/MMBtu. Its lowest close of 2023, so far, was seen on March 29.
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