Riding the Roller Coaster—Today's Natural Gas Market and the Future

Abstract

The beginning of 2023 has witnessed the biggest decline in natural gas prices in a long time. Production has been at record highs, an exceptionally warm start to January suppressed supply demand, and liquefied natural gas (LNG) exports have been down since June 2022 when Freeport LNG's export facility went offline due to a fire at its facility. The CME/NYMEX February natural gas futures contract slid to an 18‐month low of $2.94/MMBtu and expired at $3.109/MMBtu, down 54 percent from where the contract closed just two months earlier in December 2022. In other words, market prices plunged, and in the middle of the winter—usually the strongest period for natural gas sales and prices. The March contract extended the slide to a 20‐month low of $2.677/MMBtu. Freeport's eventual return will restore existing LNG export capacity, thus picking up demand levels, and by the time of publication of this column may be back in service. However, there is no new LNG export capacity due online this year—for the first time since 2016. After one of the tightest natural gas markets of the last decade in 2022, which pushed prices much higher than they had been for a long time, other than during the short but fierce Winter Storm Uri experience in 2021, things they are a'changing. The stage is set for one of the most oversupplied markets the industry has seen in years. However, in keeping with the natural gas industry's history of keeping traders on their toes, it looks as if we are reaching the end of the steady oversupply we have experienced since 2009, when the Shale Revolution swarmed in to move the entire industry from shortage to abundance, and enabled U.S. energy independence to take root. How did we get here, and how does the future look for natural gas supply and prices?