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U.S. Natural Gas Prices Hit Lowest Point Since 2021 – LNG Recap
U.S. natural gas prices continued to slide Monday after hitting their lowest point since 2021 last week, following other global benchmarks lower during a warm winter.
Henry Hub fell below $3/MMBtu last week for the first time since May 2021. The March contract closed at $2.677 on Monday. Warm weather, a strong rebound in U.S. gas production to record levels over the last year and an easing energy supply crunch overseas have pushed the U.S. benchmark lower.
Rystad Energy said last week that production growth continues to hinder prices, with January output estimated at an average of 100 Bcf/d.
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“We expect significant annual dry gas production growth of 6.9 Bcf/d in 2023, a 7% jump from last year, keeping prices muted,” said Rystad analyst Ade Allen.
U.S. storage inventories are 4.1% above year-ago levels and 4.9% above the five-year average, which has all but eroded concerns of having adequate supplies for the winter. Warmer-trending forecasts over the weekend, which showed near-term cold moderating by the second week of February, once again sent natural gas futures tumbling on Monday.
Goldman Sachs Commodities Research analysts led by Samantha Dart said they see a floor for Henry Hub of about $2 given the variable costs of production. They added, however, that such prices aren’t sustainable as they would “incentivize significantly higher gas demand for power as well as lower supply,” and leave storage inventories below average heading into next winter.
U.S. prices continued to fall even though the Freeport LNG terminal in Texas was cleared late last week by federal regulators to begin early work for a restart. The approval came after a June fire that knocked the plant offline.
Freeport, which accounted for about 15% of U.S. liquefied natural gas exports before the outage, was cleared to begin cooling part of its transfer equipment. The decision puts the plant back on track to restart in the next month or two.
Fundamentals Unchanged in Europe
Meanwhile, in Europe, the Title Transfer Facility continued to slide as it has for most of the winter. The March contract closed lower for a sixth straight day and finished under $18 on Monday. TTF did make gains further out the curve as restocking season is expected to bring more volatility if the continent has to compete for LNG cargoes.
Fundamentals were again largely unchanged. Above normal temperatures are forecast into next week, while LNG supplies and inventories remain strong. Freeport’s potential return to service also helped keep prices lower.
European storage was at 74% of capacity on Monday, compared to the five-year average for this time of year of 54%.
Asia spot prices were also still below $20/MMBtu Monday. Lower prices have attracted some price-sensitive buyers back to the market
Thailand’s PTT LNG Co. Ltd. reportedly purchased four cargoes at prices between $18-19/MMBtu for February-April delivery after a tender last week.
The Japan-Korea Marker is currently trading at a slight premium to TTF. The spread could also be strengthened by a sudden outage of a nuclear reactor in Japan as the week got underway. Kansai Electric Power Co.’s Takahama No. 4 reactor went offline on Monday. It was unclear when the unit would restart.
In other news last week, Tellurian Inc. said in an 8K filing with the U.S. Securities and Exchange Commission that it has again amended a sale and purchase agreement (SPA) with Gunvor Group Ltd. to buy supplies from the proposed Driftwood LNG terminal in Louisiana.
The deal was extended to Feb. 28 from a previous deadline of Jan. 31, giving Tellurian time to meet certain conditions before it is terminated. Tellurian has yet to sanction the 27 million metric tons/year Driftwood project and has struggled to land offtakers for it at a time when contracting activity is at record highs. Shell plc and Vitol Inc. terminated SPA agreements with Tellurian last year.
The U.S. Department of the Treasury also granted a license to Trinidand and Tobago last week, allowing the nation to bypass sanctions and develop a gas field offshore Venezuela. Trinidad could import natural gas to help offset declining domestic production and boost LNG exports from the country.
Elsewhere, Eni SpA and the National Oil Corp. of Libya agreed to develop two natural gas fields offshore Libya. The project aims to boost domestic supplies for Libya and strengthen natural gas exports to Europe at a time when the continent is looking to displace Russian supplies. Production is expected to start in 2026 and reach 750 MMcf/d.
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