by Ryan Decumber | Update October 30, 2022 07:00 am EDT
A big driver of inflation is down nearly 40% in two months as US inventory surges since the end of the air-conditioning season
Natural-gas prices have fallen more than 40% since hitting shale-era highs in late August, reducing the risk of budget-busting heating bills this winter for millions of Americans and potentially This has eased a major cost pressure for manufacturers.
The decline is due to warm autumn weather, record domestic production, and gas-storage facilities that have filled up rapidly since the end of the air-conditioning season. Now, one of the big drivers of inflation, costs are almost the same as they were a year ago.
Analysts warn that unusually cold weather could push prices up anew this winter, particularly in the Northeast where maximum pipelines have effectively limited production from Appalachia’s prolific producers.
Yet many are predicting that prices will be on average lower in 2023 than this year. They expect rising supply from increasingly skilled North American drillers as well as slow-growing demand from an economy with high borrowing costs by central bankers trying to slow inflation.
Natural gas futures for December delivery ended Friday at $5.684 per million British thermal units, up just 4.75% from a year ago. Earlier last week, futures slipped below $5 for the first time since March, when energy markets were jolted by Russia’s invasion of Ukraine.
Permian Basin producers swallowed up the Waha trading hub in West Texas in recent days, pushing prices into negative territory. According to S&P Global Commodity Insights, in some cash trades, sellers paid buyers more than $1 per million British thermal unit to pick up gas, up from $8 in early September.
Analysts say futures prices are likely to rise slightly once a furnace fire and a large liquefied-natural-gas export terminal in Texas resume operations after a fire this summer. But he expects prices to drop next year.
Analysts at Goldman Sachs expect benchmark US prices to average $5 per million British thermal units in 2023. BofA Securities has forecast $4.50. Through Friday, natural-gas futures this year averaged around $6.60 per million British thermal units, affecting not only the household budget but also gas-consuming manufacturers of materials ranging from steel and cement to plastics and fertilisers. Has happened.
Investors are also betting on cheap gas. Data from the Commodity Futures Trading Commission shows hedge funds and other speculators have made their biggest collective bet in recent weeks that prices will fall since a panic sell-off during the Covid lockdown in early 2020.
Rising natural-gas prices have been a safe bet since the early days of the pandemic. Some of the hottest weather on record spurred supplies at home and abroad, while the closure of coal-fired power plants left power producers without an alternative to natural gas. After the invasion of Ukraine, European utilities and manufacturers bid for boatloads of shale gas to replace Russian exports.
US natural-gas inventories ended the last heating season about 18% below normal levels. Another hot summer, strong exports and restraint among North American drillers focused on diverting cash to their shareholders, prevented domestic storage facilities from overfilling. As of August, reserves were still about 13% below normal and pushed prices above $10 for the first time since 2008, when the shale-drilling boom was just beginning.
Mild weather in September means that very little gas is burned to power the air conditioner. Meanwhile, US production soared to a record more than 100 billion cubic feet a day, and a prolonged outage at Freeport LNG’s Texas export terminal provided much of the gas that would otherwise have been sold overseas.
Traders began pumping more gas into storage tanks and caves, turning it away for the winter when demand is highest.
Between September 9 and October 14, 571 billion cubic feet of gas was poured into the reserves, the largest ever build-up in five weeks. Normal level deficit reduced by more than half. As of a week ago, the amount of gas in storage was within 5.5% of normal levels at this time of year, according to the Energy Information Administration.
Matthew Palmer, executive director of global gas at S&P Global Commodity Insights, said the firm expects U.S. inventories to fill up even more and winter will begin at about 3.6 trillion cubic feet in recent years.
“That should be enough for most weather scenarios,” he said. However, a really cold winter, like the cold 2013-14 season that sucked nearly 3 trillion cubic feet out of storage, could push prices north of $10, he said.