Natural gas prices likely to rise with approaching winter

According to a report, US natural gas benchmark prices are set to trend higher in the coming months amid lower domestic production, higher demand in the winter and recovering global gas prices in Europe and Asia, America’s key export destinations for liquefied natural gas (LNG).

The coming winter season and the end of the hurricane season that has disrupted LNG operations and exports along the US Gulf Coast, coupled with recovering gas demand for industrial activities in Asia and Europe, are likely to send natural gas prices to above US$3 per million British thermal units (MMBtu) during the winter.

This summer, prices have been extremely volatile, with domestic demand and storage numbers serving as key drivers in the absence of major incentives for LNG exports amid depressed demand and gas prices elsewhere due to the pandemic that hit industrial activities.

The coming of the winter heating season is likely to see a change in the fundamentals. Demand is expected to rise with the fall in temperatures in the northern hemisphere. Higher prices at the key European and Asian hubs will make LNG exports to those destinations viable and profitable again.

The recent rollercoaster ride of US natural gas prices was indicative of a demand/supply picture in a so-called ‘shoulder season’ when power demand for air conditioning begins to wane, but demand for heating is not there yet. So prices reacted to the immediate drivers—storage, feed supply for LNG, and storm induced shut-ins.

After surging more than 15 percent to over US$2/MMBtu, US front-month natural gas futures jumped by another 5 percent, after the EIA reported a smaller than expected natural gas injection into storage.

This week, natural gas prices have seen some extreme volatility due to the rollover of the October futures contract expiring on September 28, with traders rolling out of the October contract to the November contract of higher prices. While the October contract settled at US$2.227/MMBtu, the November contract settled at US$2.856/MMBtu. The futures December through March trade above US$3.20/MMBtu, with the January futures at US$3.44/MMBtu, data from CME Group shows.

In addition, LNG suppliers from the US will have more incentive to export, with spot LNG prices Asia jumping to multi-month highs on increased demand and lower supply amid maintenance in Australia and shut-in terminals due to storms and hurricanes in the US Gulf Coast.

Having plunged by more than 50 percent between January and July, LNG exports from US are set to pick up the pace, and the increase already started in August.  LNG exports from US averaged 3.7 Bcf/d in August, up by 19 percent from July amid rising spot and forward natural gas prices in Europe and Asia.

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