NYMEX gas futures top $5/MMBtu in sweeping rise as supply concerns mount

NYMEX natural gas futures prices surged across the board on March 22, lifting the balance-2022 curve into the low- to mid-$5/MMBtu range as the outlook for US supply continues to tighten.

In early trading, the Henry Hub 2022 and early 2023 contracts gained as much as 25 to 30 cents each, signaling strong anticipated demand for US gas this year and into next. The futures curve remained in contango with the summer contracts, with pricing about 12 to 15 cents above the prompt and winter pricing at 30 to 40 cents above the prompt, data from CME Group showed.

The sweeping advance in gas futures prices appears to reflect growing concern over a prolonged contraction in US production, low storage levels and the potential for record demand this summer.

Supply

After reaching a record-high 97 Bcf/d in December, domestic gas production has yet to recover from a new year's slump exacerbated by a series of freeze-offs in Texas and the Midcontinent this winter.

In 2022, US production has averaged just 93 Bcf/d but does appear to be on an upward trajectory as it trends closer to 94 Bcf/d, month to date, analytics data from S&P Global Commodity Insights shows.

Adding to market jitters is the state of US gas storage. Current forecasts show domestic inventories bottoming out somewhere below 1.4 Tcf for the reporting week ending March 18. While stocks are widely expected to begin building over the weeks ahead, US storage levels remain more than 300 Bcf below the five-year average and almost 350 Bcf below year-ago levels, data from the US Energy Information Administration shows.

As US gas supply sputters, the outlook for demand has only grown more bullish recently as utilities, end-users and others tasked with rebuilding storage inventories are forced to compete with growing LNG export demand and potentially, another record season for gas-fired cooling demand.

Demand

Following the late 2021 startup of feedgas deliveries to Venture Global's Calcasieu Pass terminal, LNG demand has been steadily on the rise this year, hitting a new record high March 19 at an estimated 13.7 Bcf/d, according to S&P Global analytics data. As the 10 mt/yr export terminal continues ramping, total US feedgas demand could be expected to surpass 14 Bcf/d by sometime later this summer.

Potentially adding to seasonal demand this year, the US National Weather Service said recently that it sees an elevated risk for unseasonably hot weather this summer across most of the lower 48 states.

According to a forecast published last week, the vast majority of the continental US – excluding coastal portions of California, Oregon and Washington – will see a minimum 33% to 40% probability for above-normal temperatures in June, July and August. The probability is even higher for most states with key cooling regions including the Northeast and Texas facing a 50% to 60% risk of hotter weather.