Source: Golden Ten Data
Author: hearer
U.S. natural gas prices have climbed to their highest level in 13 years as inventories remain well below average and a drought-induced shortage of hydroelectric power could further strain natural gas inventories. Front-month futures prices for natural gas delivered at the Henry Hub in Louisiana have climbed to around $9/MMBtu from $3/MMBtu a year ago.
Currently, U.S. inflation-adjusted prices are at their highest level since October 2008. At that time, the financial crisis intensified, and the U.S. economy gradually fell into the Great Recession.
In real terms, front-month U.S. natural gas prices are at the 86th percentile of historical levels since 1990. This shows that the United States needs to take significant steps to alleviate the shortage of natural gas.
On May 26, according to the U.S. Energy Information Administration’s weekly update on natural gas inventories, for the week ended May 22, U.S. natural gas inventories were 348 billion cubic feet (16%) below the seasonal average for the five years prior to the outbreak of the new crown epidemic. ).
Between April 1 and May 20, U.S. natural gas inventories rose by just 430 billion cubic feet, below the pre-coronavirus seasonal average of 461 billion cubic feet. Thus, the inventory deficit is increasing rather than decreasing.
Amid the inventory deficit, U.S. natural gas calendar spreads have turned into backwardation to a record level of nearly $4/MMBtu as natural gas traders expect inventories to remain tight.
Note: The calendar spread refers to the fact that an investor buys an option with a farther expiry date (referred to as a forward option), and at the same time sells an option with the same strike price and the same quantity but with a nearer expiry date (referred to as a near-term option). options).
High prices indicate a need to reduce gas consumption. This includes switching from gas-fired to coal-fired power generation where possible, while maximizing the level of drilling and production of natural gas.
The total number of operating natural gas rigs in the U.S. has climbed to 150, the highest level since late 2019, from just 100 a year ago, according to data from U.S. oil services firm Baker Hughes. The number of oil rigs producing associated gas has also climbed to 576 from 343 a year ago, the highest level since the first wave of the coronavirus outbreak in early 2020.
Increased U.S. drilling will ensure natural gas production continues to ramp up for the rest of the year and into the first quarter of 2023. However, demand is likely to grow even faster.
Over the past two months, higher-than-normal temperatures in the U.S. have driven demand for air conditioning and refrigeration. Year-to-date, the population-weighted CDDs experienced by the contiguous 48 states have reached 171, while the long-term seasonal average is only 124.
At the same time, a growing drought in western states is affecting hydroelectric power generation, increasing reliance on gas-fired generators. In California, droughts could reduce hydroelectric power generation as a percentage of total electricity generation from a median of 15% in recent years to just 8%, according to the U.S. Energy Information Administration.
In May 2022, the U.S. Energy Information Administration said in a report that increased gas-fired generation could make up about half of the electricity shortfall caused by insufficient hydro.
In addition, large quantities of natural gas produced in the United States will also continue to be exported to Europe and Asia in the form of LNG to meet the high demand in these regions. Especially in European countries, the European natural gas market is extremely tight due to the search for alternatives to Russian natural gas.
Traders expect the natural gas market to remain tight. Unusually high natural gas prices point to the need for more drilling and running non-natural gas generators for as long as possible this summer.
edit/ping
This article is reprinted from: https://news.futunn.com/post/15993756?src=3&report_type=market&report_id=206900&futusource=news_headline_list
This site is for inclusion only, and the copyright belongs to the original author.