U.S. Natural Gas Prices Fall to Two-Week Low
U.S. natural gas futures dropped to their lowest level in two weeks on Monday due to record production, negative spot prices at the Waha Hub in West Texas, and forecasts for mild weather. Natural gas prices at the Waha Hub, a key pricing point in the Permian Basin, have been near zero or even negative for much of 2024. The prices even hit an all-time low of -$7 per million British thermal units (mmbtu) at the end of August last year. This is because the boom in Permian shale gas production has outpaced the ability to transport the gas, leaving producers sometimes paying others to take their gas so they can continue producing valuable crude oil.
Gas Inventories and Weather Impact
Despite this, U.S. gas inventories remain about 12% below normal levels due to extreme cold weather in January and February. On Monday, U.S. natural gas futures fell by 1.3% to $4.058 per mmbtu at 11:15 am (EST), marking the lowest price since February 28. This price drop happened despite strong liquefied natural gas (LNG) exports, which remained at a record level of 15.6 billion cubic feet per day (bcfd).
LNG Flows and Increased Demand
Gas flows to U.S. LNG export plants have been steady, but the weather forecasts for the coming weeks are expected to reduce demand for heating, which has put additional pressure on gas prices. Weather forecasts for late March show above-normal temperatures in the western U.S., reducing heating demand, while the East Coast is expected to see below-normal temperatures for a short period before warming up again.
Permian Basin’s Impact on Gas Prices
Gas prices in the Permian Basin at the Waha Hub fell into negative territory due to pipeline maintenance, which trapped the gas produced with oil in the region. These pipeline issues are a result of the rapid growth in oil production, which has outpaced the building of gas transport infrastructure. As a result, gas prices in the region turned negative 49 times in 2024, a record high, due to these constraints. In 2023, it happened once, and in 2022, the price went negative multiple times as well.
Gas Production and Demand Projections
In March, gas output in the Lower 48 U.S. states rose to 105.9 billion cubic feet per day (bcfd), surpassing February’s record of 105.1 bcfd. However, gas demand remained lower than normal as weather forecasts predict above-average temperatures through early April. The demand for gas in the Lower 48 states is expected to rise from 107.2 bcfd this week to 107.7 bcfd next week.
LNG Export Growth
The U.S. LNG export capacity continues to grow, with LNG net flows to U.S. export terminals rising to 15.7 bcfd in March, slightly higher than the previous month’s record of 15.6 bcfd. This increase in LNG exports is a positive sign for U.S. natural gas demand and may support gas prices.
Biden’s Policy Change and Future Impact
In a move that could positively affect natural gas prices, U.S. President Trump lifted the Biden administration’s pause on approving gas export projects in January. This has led to the approval of several LNG export projects, including the Commonwealth LNG export facility in Louisiana. The increased capacity for LNG exports is expected to boost the demand for U.S. natural gas.
Natural Gas Storage and Drilling Activity
Recent reports show that U.S. natural gas storage levels are still about 27% lower than last year and 11.9% below the five-year average, indicating tight supply. In response to lower gas prices, the number of active natural gas drilling rigs has fallen to 100, which is still higher than the low point of 94 rigs in September 2024 but well below the peak of 166 rigs in September 2022.
This reduction in drilling activity may affect future gas production levels. natural gas prices in the U.S. have been under pressure due to record production, mild weather forecasts, and infrastructure limitations in key production areas like the Permian Basin. Despite strong LNG export flows, the overall demand for natural gas has been weaker, which is expected to keep prices low in the near future. However, the potential for increased LNG export capacity and rising demand for gas in the coming months could support prices in the long term.
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