Oil & Gas

Despite the currently low natural gas prices in the United States and the abundance of shale gas resources, the futures market has experienced significant fluctuations in recent months.

The record gas production in 2023 and one of the warmest winters in decades have caused the U.S. benchmark gas price at Henry Hub to drop to its lowest level in decades. However, these factors have not eliminated the risk of sudden price spikes and drops. According to Wood Mackenzie,volatility is expected to persist and even increase in the coming years, at least until the U.S. expands its natural gas storage capacity.

U.S. natural gas prices recently fell to around $1.55 per million British thermal units (MMBtu), their lowest level since 1995, excluding the crash in energy prices caused by Covid-19 in 2020. Adjusted for inflation, natural gas prices reached their lowest level since the New York Mercantile Exchange began trading U.S. natural gas futures in 1990.

The Energy Information Administration noted that high natural gas production, low natural gas consumption, and high inventories have contributed to price declines for much of 2023 and the first two months of 2024.

Wood Mackenzie's Vice-Chair Americas, Ed Crooks, stated that while the outlook for average gas prices remains stable, the potential for volatility around those averages has increased. He added that price volatility is likely to persist until there is a substantial increase in gas storage capacity in the U.S.

The response of U.S. shale producers to price signals has led to cycles of lower or higher natural gas prices. The U.S. market has expanded significantly in the past decade without a proportional increase in storage capacity, leading to greater price volatility.

Despite the current low prices, some of the top gas producers in the U.S. have announced plans to reduce output in response to the market conditions. Companies like Antero Resources,Comstock Resources, EQT Corporation, and Chesapeake Energy have all announced production cuts or reductions in drilling activity.

Without additional storage capacity,U.S. natural gas producers are likely to continue adjusting their production in response to market conditions, leading to ongoing price volatility.