USA Gas Market Rollercoaster Ride Far from Over

It’s an understatement to say that U.S. gas markets have had a whirlwind year, but the rollercoaster ride is far from over as winter beckons. 

That’s what Rystad Energy Analyst Ade Allen said in a market note sent to Rigzone on Tuesday, adding that high gas prices are expected to stick around for a while.

“Market participants have been forced to adapt their strategies in response to rising demand, geopolitical complications and supply bottlenecks,” Allen stated in the note.

“The importance of U.S. LNG exports to Europe is increasing further as one of the only immediate solutions to the gas shortage currently gripping Europe. However, the first half of the year presented some significant headwinds as dry gas supply failed to meet expectations,” Allen added.

“Supply chain bottlenecks and capital-disciplined operators have served as the primary inhibitors of significant supply growth, but an uptick in dry gas supply is emerging,” Allen continued.

Even increased production is unlikely to temper prices though as drillers struggle to keep up with soaring domestic and international demand, Allen highlighted.

“Further, storage levels are far below the five-year average and have shown little sign of making up ground despite winter on the horizon,” Allen said in the note.

“Market participants are trying to decide if the gains are a result of short-term responsiveness to price or whether the growth is structural due to increased spending in the second half of the year. Our analysis points to the latter as we expect medium-term growth of 8.25 percent over the next two years,” Allen added.

The Rystad analyst also outlined in the note that a “sweltering” summer pushed power burns to previously unseen levels and highlighted that the Freeport LNG explosion “immediately changed the market dynamics by reducing overall demand by two billion cubic feet per day”.

“Henry Hub prices on the precipice of $10/MMBtu were short-lived and cratered immediately,” Allen said.

“However, as record temperatures lingered, the narrative implied that record gas-for-power generation could create some buoyancy for the overall demand picture,” Allen added.

In the note, Allen warned that the specter of winter is looming over the market and added that the large disparity of pricing outcomes is becoming more divergent.

“High gas prices are expected to stick around for a while, with the threat of a late-season tropical storm or hurricane and the risk of a severe winter potentially triggering an even higher price situation,” Allen said.

“We also anticipate September power burns to remain strong compared to the same month last year. Domestic gas balances are setting Henry Hub prices for increased volatility heading into winter as the market struggles to find equilibrium between upside and downside catalysts as end of season draws near,” Allen added.

At the time of writing, the price of Henry Hub gas is trading at $7.90. The commodity’s highest 2022 close, so far, was seen on August 22 at $9.68. Its lowest 2022 close, so far, was seen on January 4 at $3.71. From June to September, the Henry Hub price has bounced up and down, dropping as low as $5.51 in July before seeing its highest close of the year in August.

To contact the author, email andreas.exarheas@rigzone.com