Despite continuously rising U.S. natural gas demand and near-record gas-powered demand in the summer heat waves, the benchmark U.S. natural gas price has collapsed since the end of the winter.
With summer drawing to a close and the so-called ‘shoulder season’ of typically low natural gas demand in the spring and fall about to settle in, U.S. natural gas prices could be in for another slump as production continues to surge while storage starts to fill.
The last days of August could be the “final crescendo of summer temperatures” which drive natural gas demand for air conditioning high, Dan Myers at Gelber & Associates told Investing.com.
Cooler weather in many areas of the United States after this week is set to further depress the Henry Hub natural gas prices as injection into storage is expected to increase, according to Myers.
Yet, Investing.com doesn’t see natural gas futures—which had dropped by 0.55 percent at US$2.151 per MMBtu on Thursday—at an immediate risk of slumping below the key US$2.000/ MMBtu support level.
But the typical seasonal patterns of consumption and prices in natural gas—with higher demand and prices in the winter and to a certain extent in the summer because of demand for cooling—failed to materialize this summer, following months of extreme volatility in the fall and winter of 2018-2019.
In the middle of November last year, natural gas prices jumped to $4.80 per MMBtu as storage at a 15-year low, an unusually cold fall, production freeze-offs, and high exports from Corpus Christi combined to create a perfect storm that sent U.S. natural gas prices to their highest level since the polar vortex of 2014.
Natural gas prices continued their wild swings in both directions into the New Year, because inventories below the five-year average and seasonal storage draws have made prices highly vulnerable to changes in the short-term weather models and forecasts.
After winter and peak demand season ended in March, natural gas prices were steadily sliding amid surging production from shale gas fields and a cool start to this summer.
At the peak of the summer, natural gas futures fell earlier this month to their lowest levels since 2016 while spot prices slumped to the lowest in as much as two decades. Related: The Revival Of A $53 Billion Megaproject
A record level of U.S. natural gas production is the main driver of depressed prices, the EIA says.
“This summer, prices have continued to decline despite high levels of natural gas exports and increased consumption in the electric generation sector. Prices averaged $2.40/MMBtu in June and $2.37/MMBtu in July as growth in natural gas production continued to offset growth in consumption,” the EIA said in its Natural Gas Weekly Update for the week to August 14.
Despite the lower prices, U.S. natural gas production continued to increase in August and set a new daily production record of 92.1 billion cubic feet per day (Bcf/d) on August 5, the EIA said, citing data from OPIS PointLogic Energy. Between May and August, gas production rose by 2.5 percent, mainly driven by the Northeast.
Due to declining prices and expectations of continued strong growth in natural gas production, in its latest Short-Term Energy Outlook (STEO) the EIA revised down its Henry Hub spot price forecast for the second half of 2019 to an average of US$2.36/MMBtu, down from a projection of an average of US$2.50/MMBtu in the July STEO. For 2020, the EIA expects natural gas prices to increase to an average of US$2.75/MMBtu.
Despite the low natural gas prices, drillers continue to increase production, further depressing prices, which could slump even more now that the lower-demand ‘shoulder’ fall season begins.