Low Prices Prompt “Fresh Cutbacks” in NatGas Production Says WSJ
Despite one of the hottest summers on record, natural gas prices are in the crapper. The abysmal price situation is causing big drillers in the Marcellus/Utica, like EQT and Coterra, to cut back even further on natural gas production, according to an article in the Wall Street Journal. Coterra CEO Tom Jorden recently told investors that “gas markets are oversupplied,” and his company will trim production by an extra 325 MMcf/d (see Coterra 2Q – Trimming Another 325 MMcf/d of Marcellus Gas).
Read More “Low Prices Prompt “Fresh Cutbacks” in NatGas Production Says WSJ”
Yesterday, the “front month” NYMEX natural gas contract for Sept. delivery gained 4.60 cents per million British thermal units (MMBtu), rising 2.15% to $2.1890/MMBtu. Hey! Above $2 for five consecutive trading sessions! How long will the price stay above $2? Zacks.com took a stab at answering that question.
Once a month, the U.S. Energy Information Administration (EIA) analysts issue the agency’s Short-Term Energy Outlook (STEO), their best guess about where energy prices and production will go in the next 12 months. Starting in June, the EIA axed its monthly Drilling Productivity Report that focused on shale plays and instead rolled it into the monthly STEO (see 
The “front month” NYMEX natural gas price, based on the Henry Hub in Louisiana, closed below $2/MMBtu on Friday. It was the second day in a row the NYMEX price closed below $2. The cash price was even worse, averaging $1.89 on Friday after bottoming out earlier in the week at $1.80. Geesh. We thought we left that bottom-bumping low-price stuff behind a while ago, but apparently not. What’s going on? Even though temps have been hot hot hot, there are concerns over an uptick in production over the past week. Too much supply with the same demand equals lower prices.
According to the U.S. Energy Information Administration (EIA), the average monthly wholesale spot (not futures, but spot) natural gas price at the U.S. benchmark Henry Hub fell by 20% to $2.56 per million British thermal units (MMBtu) between January and June of this year. In January, the Henry Hub price averaged $3.18/MMBtu, then dropped to $1.49/MMBtu in March, marking the lowest average monthly inflation-adjusted price since at least 1997. In addition, prices from February through April 2024 were the lowest ever recorded for those months.
It pains us to write these kinds of posts, but we can’t ignore the bad news that the futures price for natural gas (NYMEX Henry Hub, front-month) is once again crashing. It closed down just above $2.00 yesterday. Will the price actually sink below $2 once again? It’s possible. The question is, why? What is driving this latest round of low prices even as the weather has been hot, hot, hot? We almost saw prices above $3 not long ago, and yet here we are, bumping along near $2 once again. The NYMEX price has closed down (lower than the previous day) in 19 of the last 24 trading sessions.
Natural gas traders are predicting (more like warning) that Europe’s natural gas storage tanks will be filled to the tippy top during the third quarter (which ends in September), ahead of the normal schedule. At the start of the second quarter, Europe’s tanks were 59% full. As of July 12, they were 80% full. If European storage closes early, that will put downward pressure on prices here in the U.S. Less demand with the same supply equals lower prices.
Must be it’s an election year. How do we know? The desperate Democrats are doing their best to distract and focus attention away from the decrepit, mentally impaired Joe Biden by accusing “Big Oil” of conspiring with OPEC to keep oil prices high. Except oil prices aren’t all that high. U.S. Senator Sheldon Whitehouse, a Communist (who pretends to be a Democrat) from Rhode Island, is “demanding” all sorts of internal communications from “Big Oil” companies in a new witch hunt he’s launched into this earth-shattering matter. Sheldon Whitehouse is a LOSER in all capitals.
Last Friday, Morningstar DBRS published a commentary titled, “Record-High Temperatures Boost Power Demand but Ample Gas Inventories Prevent a Bigger Jump in Prices” (full copy below). Since early March, U.S. and European natural gas prices have climbed steadily in the anticipation — and eventual onset — of much warmer than normal early summer temperatures even as producers curbed supply to contend with the glut built up during the past mild winter. Although U.S. and European gas storage inventories have been drawn down from early 2024, they remain high for this time of year. Large inventories are preventing prices from moving higher, says Morningstar analysts. It’s classic economics — more supply with the same demand equals lower prices.
Price volatility is how much and how fast a price, like the NYMEX futures price of natural gas at the Henry Hub, changes. How much the price “swings” up or down, and how suddenly, is a measure of volatility. In 2022, when the price of natgas spiked to new multi-year highs, it did so quickly. The price in 2022 also came down about as quickly as it rose, meaning extreme volatility. Since early 2022, NYMEX prices, in general, along with volatility, have settled down. The extreme price swings are gone — at least for now. Sadly, higher prices for natgas are also gone for now.