US Natural gas futures slip – is the honeymoon over?

Commodities

With US natural gas futures on a downward trend, we ask is time up for high gas prices?

Natural gas trading

Natural gas futures start the week in the red

What a couple of weeks it’s been for the Henry Hub natural gas contract.

It seems only yesterday that we were talking about natural gas reaching all-time highs. It’s certainly true that wholesale commodity prices in Europe and Asia are still exceptionally high.

While oil continues to rise, gas looks like it’s on the decline. But in terms of the US, which Henry Hub focuses on, we’re asking is the honeymoon over?

Prices were firmly in the red on Monday. Starting the day at around $5.20, Henry Hub futures dropped to $4.90 at their lowest. As of Tuesday morning, prices had climbed back into the green, before slipping down to the $4.90 level.

Why the slump? There are a couple of factors at play.

First up, there is the weather. Mild to seasonal high temperatures across much of the US is capping off demand.

Natural Gas Weather states: “One weather system will bring showers to New England, while a second system tracks through the Mtn West w/rain and snow, but both mild w/highs of 40s to 60s. The rest of the US will be nice w/highs of 60s to 80s for very light national demand.

“The system currently over the Mtn. West will track across the Great Lakes and Northeast this weekend w/highs of 40-60s, lows 20s-40s for a modest bump in national demand.

“For next week, weather systems will bring rain and snow to the West, while very nice over the eastern 2/3 of the US. Overall, national demand will be LOW through Friday, then MODERATE this coming weekend.”

Basically, not a lot of need for gas heating in key consumption areas of the US.

However, we have seen a slight bump in gas consumption. For the week ending October 8th, US consumption increased 1.3% week-on-week.

We’re also in injection season: the time of year when the US looks to build stockpiles in line with colder winter temperatures.

The EIA forecasts that US natural gas inventories ended September 2021 at about 3.3 trillion cubic feet 5% less than the five-year average for this time of year. Injections into storage this summer have been below the previous five-year average.

This was down to a combination of hot summer temperatures leading to more electricity use for cooling purposes and increased exports. Despite this, domestic production has remained fairly flat across the year. A sizeable chunk of US production infrastructure was shuttered earlier in the year due to Hurricane Ida.

The latest EIA data ahead of Thursday’s release shows total stocks standing at stood at 3.369 Tcf for the week ending October 8th – down 501 Bcf from a year ago and 174 Bcf below the five-year average once again.

Gazprom to the rescue?

Switching to European markets, Gazprom might be following the lead of President Putin (read: orders of President Putin) by stepping up production capacity for its long-term gas deals.

“Of course, if Russia’s European partners increase orders and if the volumes in long-term contracts grow, I think that Gazprom will surely develop its production capacity,” Deputy Prime Minister Alexander Novak said in an interview during last week’s Russian Energy Week summit.

This is pipeline all part of pipeline politics. Russia has been accused of gas market manipulation in an effort to force the EU into accepting the Nord Stream 2 pipeline. Never mind that this is pretty much a necessity for Germany’s energy needs, but the bloc has long been basically hostile towards Russia.

But as the European gas crisis rolls on it seems the deck is stacked fairly heavily in Gazprom and Russia’s favour. They’re the ones with the gas. They’re the ones with the export infrastructure. They’re the ones with more customers than just Europe.

Unless Europe picks up more gas from America or Qatar, then it’s likely to remain reliant on Russian products for the foreseeable future.