Commodity Market Report
North America gas short-term outlook February 2020: US LNG under-utilization may become a reality
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Report summary
The first salvo of US LNG cargo cancellations has reportedly been fired. Will more follow? Global oversupply is closing in on distressed netbacks, compounded by coronavirus fears. We’ve risked our view in anticipation of more to come. This comes among tightening market conditions: production continues to decline after its November 2019 peak, and power rolls on with its coal-to-gas switching. The prompt Henry Hub March contract remains under $2.00/mmbtu for now, but we expect a gradual rise through the summer.
Table of contents
- The first salvo of summer US LNG cargo cancellations has been fired. However, we continue to believe current low gas prices below $2/mmbtu are fundamentally unsustainable. The market was already tightening significantly, as witnessed in a string of much higher than expected weekly storage withdrawals. Low gas prices have resulted in a halt to sequential US gas production growth, especially in the Northeast. Since November 2019 production continues to be in a steep decline. Record power burns are occurring due to increased coal-to-gas displacement at these low gas prices. The two Ps will have to work even harder now.
- Risks of Permian Highway Project delay allayed, while Northeast production continues to decline.
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