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Summer Weather Expectations Drive Natural Gas Prices Up

Published 06/05/2024, 11:48 AM

At the end of May 2024, natural gas prices outperformed, reaching the highest level since February and climbing to $2.7 per 1 MMBtu. Last Monday, they reached a six-month all-time high of $3.16.

Let’s delve deeper into the current natural gas market dynamics and forecast the rest of 2024.

Natural Gas price dynamics

Source: Investing.com

Reasons for the natural gas price surge

If the June contract is discussed, the price rose from $1.8 to $3.1 per 1 MMBtu, the main reasons for this were the following. The first one is that gas prices are being pushed up by summer weather expectations. The world temperature is increasing yearly, and a rise in anticipation of a warmer June compared to June 2023 by more than 25% on cooling days affects natural gas prices positively.

Another important factor at play is a decrease in production and an expected slight increase in it in June. This situation can create supply concerns, thereby driving prices even higher. A weekly report from the U.S. Department of Energy supported the idea, proving that indeed natural gas supplies increased less than expected. Positive stock indicators, as well as signs of a reduction in production, pushed up gas prices.

One more reason for the rise in gas prices is the increase in LNG exports due to the unforeseen shutdown of the Freeport plant for repairment. This, in turn, has led to a rise in gas prices in May. Additionally, one of the indirect causes of the potential gas shortage in June is a requirement to transfer gas to storage facilities, except for those that use multiple cycles.

Natural gas market trends & forecasts for the second half of 2024

The main forecast that can be applied to the whole of 2024 is reduced gas production. This will occur for the entire period of 2024, which increases the risks of sharp price fluctuations. Along with this, the US gas market in 2024-2025 will bring storage volumes to normal in the range of 1800 in April and 3800 billion cubic feet in November 2025.

With the stable operation of the gas transmission system and LNG plants, the gas prices are expected to increase sharply in June and especially in the second half. However, there is also a risk of lower gas prices in late August and September. If the weather is cool, a significant up to 20% drop in prices could occur at the end of September.

The global trend in the natural gas market is a change in the logistics chains of gas supplies, particularly the transition to LNG. In addition, we are witnessing a shift to LNG becoming one of the most important derivatives, ranking alongside oil rather than following it. Consequently, gas is evolving into a highly significant commodity with its pricing logic independent of oil.

In the United States, in particular, the cost of shale gas production is decreasing. Along with it, the use of gas is being maximized. This shift allows the replacement of coal in electricity generation. Consequently, the cost component of almost all products manufactured in the country is lowered. Additionally, there is an expansion in the electric fleet due to the growth of newly introduced energy-generating capacities and improvements in their efficiency.

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