Commodity Market Report
North America Gas Short-Term Outlook: Strengthening global gas markets
Report summary
The North America gas markets have inflected strongly upward led by strengthening global gas prices. • Global LNG demand is rebounding and European gas markets have tightened. • The great US LNG pushback is coming to an end with utilization rates already starting to rebound. With US LNG set to return to near full seasonally adjusted utilization levels this winter and beyond, Henry Hub gas prices need to move higher. Dry gas production needs to be incentivized to replenish storage levels that will inflect to a deficit this winter. In this update we are also extending our outlook into 2022. What lies further ahead in North America gas markets?
Table of contents
- The North American gas markets have inflected upward led by strengthening global gas prices. Henry Hub seems to be the egg rather than the chicken this time versus when rising US LNG exports into a oversupplied global market sent global gas prices spirally downward to a race to the bottom that resulting in the great US LNG pushback.
- European storage injections have considerably slowed down with less US LNG, lower domestic production, lower Russian pipeline gas and demand recovery from coronavirus lockdown measures alleviating storage overfill worries resulting in both prompt TTF and NBP recovering to near $3/mmbtu. Additionally, the risk of higher Russian gas pipeline deliveries have eased with increased US sanctions surrounding Nord Stream 2 giving additional price support into 2021 and beyond.
- Prompt September Henry Hub gas prices have rebounded $0.75/mmbtu to near $2.40/mmbtu versus July lows and the October/January spread narrowed in from $1.10/mmbtu to $0.70/mmbtu as a result. Although hotter weather and increased power demand has been additive, the primary fundamental driver are led by higher US LNG utilization in August recovering near 5 bcfd on a daily level versus July lows under 3 bcfd. Shoulder season utilization rates are expected to continue its rebound and provide support as power demand levels start to fall off its peak summer levels. Based on our updated global LNG short term balances we expect a return to near full US LNG utilization rates this winter and into both 2021 and 2022.
- US gas production continues to underperform expectations and capital discipline by both oil and gas producers may temper the return back to growth for 2021 and 2022. The big 3 production drivers remain the Northeast, Haynesville and Permian. If muted supply response to higher prices arise, the market will search for increasingly higher levels to incentivize producers to loosen their tight budgets and redeploy capital back into the fields. Current NYMEX calendar strips, especially in 2022 are too low to do so and hence our Henry Hub gas price forecast for 2021 and 2022 are at or near $3/mmbtu.
- Regional gas markets have been quite volatile. While Northeast basis has not shared Henry Hub gas price rally, significant hot temperatures out west have surged Socal citygate basis up to double digits. Permian prices are also benefitting, but ongoing maintenance outages have also resulted in negative prices earlier in the month.
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