US NATURAL GAS PRICES, 2024 – 2050, US$/MMBtu
US natural gas prices have been on a tear recently, after collapsing to record lows in 2023. They have surged to $4.25/MMBtu in recent weeks, as the chart shows. As analyst John Kemp reports:
“U.S. gas futures prices have doubled in real terms over the last 11 months as surplus inventories have been eliminated by record gas consumption by generators, a colder winter, faster LNG exports and a downturn in production.”
THE SWITCH TO LA NIÑA FROM EL NIÑO HAS LED TO SHORTAGES
We highlighted this risk in December when warning that Northern USA and N Europe should expect a cold winter as La Niña replaces El Niño:
As the charts show, the two patterns start with either a warming or cooling of the central and eastern equatorial Pacific Ocean.
- In the La Niña sequence, the cooling of the ocean then pushes cold air into the atmosphere, causing the jet stream to trap cold air from the Arctic and increasing the risk of cold weather across the northern US and Europe
- In the El Niño sequence, the opposite happens, with the warmer air pushing the jet stream further north and generally leading to wetter weather (as warm air can contain more water molecules)
US PRODUCTION HAS PLATEAUED SINCE 2023’S PRICE COLLAPSE
Weekly total rig count
Of course, the price surge would have been weaker if production was at more normal levels. But 2023’s record low prices meant producers had already cut back drilling, as the EIA’s chart shows;
- Monthly production peaked at 4.0bn cubic feet in December 2023
- By November last year it had already fallen 3.6% to 3.8bn cubic feet
At the same time, consumption has been surging as colder weather arrives after 2 years of abnormally high temperatures. It was up 10.6% on a weekly basis in the latest EIA report, with all sectors seeing an increase.
LNG EXPORT DEMAND IS BUILDING FAST
LNG Exports 2000-2022
The turnaround highlights the need for robust scenario planning that includes a focus on ‘Known Unknowns’, as discussed last month
15 years ago, for example, most people were planning on the basis that the US was potentially running out of gas. Companies such as Cheniere began building major import facilities in response.
But then the industry discovered fracking. And the new LNG import terminals at Sabine Pass and elsewhere were either mothballed, or converted into export facilities;
- By 2022, US exports were catching up with Qatar and Australia, as the Forbes chart shows
- By 2023, Bloomberg data suggests it had become the world’s leading LNG exporter
The US is now exporting >15bn cubic feet/day of LNG, around 1/6th of US consumption. 8 export terminals are already in operation, and 5 more are in construction. The new administration’s decision to resume LNG terminal permitting means total volume could more than double over the next 5 – 10 years.
So far, of course, prices are still relatively low, as Kemp’s chart confirms:
“Front-month prices have averaged $3.57 per MMBtu so far in February (25th percentile for all months since 1990 after adjusting for inflation) up from $2.60 (5th percentile) as recently as October 2024 and a record low of $1.79 in March 2024.“
And President Trump is focused on increasing US LNG sales, in line with the 2025-6 priorities established by the Heritage Fund.
He has already secured a pledge from Japan’s premier to start buying US LNG, as the Wall Street Journal reports.
Commodity prices tend to go from boom to bust, and back again. The reason is that it takes years to build new capacity. Yet market conditions can change in months.
So it would be no surprise at all if US natural gas markets now move back into another boom, and help to set off another round of inflation.