Natural gas is one of the most important sources of energy in the United States, accounting for about 40% of the total electricity generation in 2023. This article, is focusing on the current three key aspects: production, inventories, and prices. Here are some of the main highlights of the article:
U.S. natural gas production has increased by 6% in 2023, mainly due to the Permian Basin, and is expected to remain flat until late 2024.
U.S. natural gas inventories are 12% above the five-year average and 22% above last year’s level, resulting in lower natural gas prices in 2023.
U.S. natural gas prices have declined by 62% from 2022 to 2023, averaging $2.41/MMBtu in the first half of 2023.
U.S. natural gas consumption is projected to decline by 2% in 2024, as coal and renewable energy sources become more competitive.
U.S. natural gas demand is expected to increase in late 2024, as new pipeline capacity and LNG exports come online.
Production:
The U.S. is the world’s largest producer of natural gas, with an average of more than 102 Bcf/d in the first half of 2023. This is a 6 Bcf/d increase compared with the same period in 2022, when natural gas production was affected by the COVID-19 pandemic and low oil prices. The main driver of the production growth in 2023 has been the Permian Basin, which accounts for about 30% of the total U.S. natural gas output. Most of the natural gas produced in the Permian Basin is associated with oil wells, meaning that oil-drilling activities determine natural gas production levels. As oil prices have recovered from their lows in 2020, oil producers have increased their drilling activity in the region, resulting in more natural gas production.
The U.S. Energy Information Administration (EIA) forecasts that U.S. dry natural gas production will average about 104 Bcf/d through the end of 2024. This implies that production will remain near current levels for most of the forecast period, before increasing slightly in the fourth quarter of 2024. The main factors that will support production growth in late 2024 are new pipeline capacity that will enable more natural gas to flow from producing regions to consuming regions, and increased demand for liquefied natural gas (LNG) feed gas as two new LNG export facilities are expected to come online at the end of 2024.
Inventories
The U.S. has a large network of underground storage facilities that can store up to 4.3 Tcf of natural gas. These facilities help balance the seasonal fluctuations in supply and demand, as well as provide flexibility and security in case of unexpected disruptions or emergencies. The amount of natural gas stored in these facilities is measured by working natural gas inventories, which reflect the difference between injections (adding natural gas to storage) and withdrawals (removing natural gas from storage).
U.S. working natural gas inventories totaled 3,051 Bcf at the end of July 2023, which is 12% above the five-year average and 22% above the same period last year. The high level of inventories reflects the fact that net injections of natural gas into storage have exceeded the five-year average by 3% so far this refill season (April 1–October 31). The main reason for this is high natural gas production, which has outpaced domestic consumption and exports. The EIA forecasts that working natural gas inventories will end the refill season at nearly 3.9 Tcf, which is 7%, or 250 Bcf, higher than the five-year average. The EIA expects that storage inventories will remain above the five-year average throughout 2024, as natural gas production continues to be high and natural gas consumption declines by 2% in 2024 compared with 2023. The decline in consumption is mainly due to lower demand from the electric power sector, which is projected to use less natural gas for electricity generation as coal and renewable energy sources become more competitive.
Prices
The price of natural gas is determined by the interaction of supply and demand in various regional markets across the country. The most widely used benchmark for U.S. natural gas prices is the Henry Hub spot price, which reflects the price at a major pipeline hub in Louisiana that connects several interstate and intrastate pipelines.
The Henry Hub spot price averaged $2.41/MMBtu in the first half of 2023, which is a 62% decline from the annual average of $6.42/MMBtu in 2022. The main factor that has driven down natural gas prices in 2023 is the surplus of natural gas inventories, which has reduced the need for buyers to bid up prices to secure supplies. Other factors that have contributed to lower prices include mild weather conditions that have reduced heating and cooling demand, and lower LNG exports that have reduced the demand for U.S. natural gas in the global market.
The EIA forecasts that the Henry Hub spot price will average $2.55/MMBtu in 2023 and $2.75/MMBtu in 2024. These prices are lower than the historical averages of $3.35/MMBtu and $3.64/MMBtu for 2018–2022 and 2013–2017, respectively. The EIA expects that natural gas prices will remain relatively low throughout the forecast period, as the supply of natural gas will continue to exceed the demand, keeping inventories above normal levels. However, the EIA also notes that natural gas prices are subject to significant uncertainty and volatility, depending on weather conditions, economic activity, pipeline outages, and global market developments.
Conclusion The U.S. natural gas market has experienced significant changes in 2023, with increased production, high inventories, and low prices. These trends are expected to persist until late 2024, when new pipeline capacity and LNG exports will boost demand and support higher prices. The U.S. natural gas market offers many opportunities and challenges for investors, consumers, and policymakers, as it plays a vital role in the U.S. energy system and the global energy market.
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The information provided in this market insight is for general informational purposes and should not be considered as financial advice. It is not intended to offer any financial recommendations or endorsements. Any decisions made based on the content are the sole responsibility of the reader.
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