A warm January is putting a chill in US natural gas markets. Spring-like temperatures have sent the spot price of the benchmark Henry Hub natural gas price plummeting to just around $4 per million British Thermal Units for a February delivery contract. In August, the spot price hovered at nearly $10/mBTU. Those prices were driven by concerns over global supplies after Russia halted gas exports to Europe.
US independent drillers such as EQT, Comstock Resources and Range Resources were among big winners through much of 2022 as high commodity prices along with soaring production padded profits. 2023 was set to be another solid year but the start is inauspicious.
In early 2017, the US produced on average 70bn cubic feet per day of natural gas. That figure by late 2022 slightly exceeded 100bn cf/d, according to the US Department of Energy. The surge had been driven by drilling activities in Louisiana, Texas and New Mexico and the accompanying build out of pipeline infrastructure.
That production surge has made gas exports to energy-hungry Europe and Asia a big business. US liquefied natural gas exports volume was up nearly 80 per cent in 2022 versus 2020, according to the Energy Department.
Americans had been facing a winter where heating costs were expected to jump more than 30 per cent based on rising heating oil and natural gas prices. These prices are often set by utilities in advance and sticky, particularly on the way up. But a milder winter can restrain already elevated retail energy prices.
Analysts had expected natural gas prices to come off of their 2022 highs with healthy production gains. Still even at estimates of between $5 and $6 per m/btu, those levels remain well ahead of market prices before the pandemic. For drillers, the heady days of 2022 may not be coming back soon. Still, their medium-term prospects remain healthy even as the perennial question of balance between greater drilling and capital efficiency remains.