Commodity Market Report
North America gas markets short-term outlook January 2020: the race to the bottom
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Report summary
As hopes of a “normal” winter have faded, the race to the bottom has started, with the January contract closed at $2.16/mmbtu and prompt February trading below $2.00.mmbtu. But if history has taught us anything, low prices are the cure to low prices. Winter 2015/2016 saw the the March 2016 contract settle at $1.71/mmbtu due to high supply levels and extremely mild weather, but Henry Hub quickly recovered to above $3.00/mmbtu by the start of Winter 2016/2017. Already supply and demand are reacting to low prices; US gas production has been declining and is projected to continue to do so. Record high power levels are expected to increase, with coal-to-gas displacement, and we expect record levels of LNG and Mexican exports to inch up even further.
Table of contents
- The race to the bottom has started with hopes of a return to normal winter weather erased. Time is running out with few remaining peak heating demand days as short-term weather forecasts now extend into early February. However, current low gas prices below $2/mmbtu are unsustainable. Both supply and demand sensitivity to low prices are occurring. US gas production has been in decline and projected to continue throughout 2020. Already record high power demand levels are expected to increase further with additional coal-to-gas displacement. Add in record levels of LNG and Mexican exports and a more constructive fundamental picture is painted for next winter and beyond.
- Low Permian and Northeast prices further pressure production, while Canadian producers may benefit from stronger AECO basis.
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