Natural gas prices they have reached their highest levels since 2014, surpassing oil and many other commodities. On Monday, natural gas futures traded up 2.6%, to $ 5.09 per million British thermal units (BTUs), their highest liquidation price since February 2014. Natural gas prices are up. increased by 117.6% today, while they were the largest. gas reference, the United States Natural Gas ETF, LP (NYSEARCA: UNG) has increased by 88.6% over the term. The impact of adhesives is even greater in other key natural gas markets around the world, with reference futures in East Asia and Europe punctual prices of natural gas they have risen 4 to 5 times the previous year’s levels to $ 18 per MMBtu.
Still, some experts say this rally is far from over.
Stan Brownell, an analyst at Argus Media, and Luke Jackson, an analyst at S&P Global Platts, estimate that Henry Hub prices should jump to $ 10 or more to provide an incentive to meet domestic demand for natural gas.
This would mean a duplication of natural gas prices from current levels to the levels last seen in 2008, when the US produced about 40% less natural gas
Natural gas (Henry Hub) USD / MMBtu
Source: Business Insider
International demand for natural gas is booming
An unusually cold winter in Europe, as well as a global rise in Covid-19, have sparked strong demand and depleted natural gas inventories. Meanwhile, Hurricane Ida has eliminated a considerable amount of gas production, with 77% of oil and gas production still offline in the Gulf of Mexico. According to U.S. government statistics, natural gas inventories are currently 17% lower than a year ago and 7.4% below the five-year average.
Related: two ways to play the 107% rally on natural gas
To reach the average five-year storage level in early winter, U.S. natural gas producers must inject approximately 90.4 billion cubic feet each week from now on, approximately 40% more than the five-year average weekly clip. The latest data from Energy information management shows that nat. Last week, gas inventories rose to 52 bcf, well below what is required to build enough stocks for the winter.
Interestingly, analysts point out that American consumption is not really the engine of strong price action. In fact, according to data from the U.S. Energy Information Administration, domestic consumption of natural gas up to June was in line with 2020 levels.
The real culprit here is strong international demand for natural gas and the rapid growth of the LNG sector in the United States.
During the first half of the year, the US exported about 10% of its natural gas, or 41% more than a year ago. Normally, the excess natural gas produced during the summer would be stored underground. But this national storage has been lower than normal, with producers exporting much of it as LNG.
Source: US Energy Information Administration
Asia and Europe still need to stock up more to prepare for winter, and much of their supplies will have to come from the United States because non-U.S. LNG exporters have been mostly affected by maintenance. For example, Russia, the largest supplier of natural gas in Europe, has been slowing down its deliveries. Natural gas inventories in Europe are currently 16% below the five-year average and at a record low in September. Meanwhile, continued unplanned outages at LNG export facilities in several countries, including Australia, Malaysia, Nigeria, Algeria, Norway and Trinidad and Tobago, have contributed to increased demand for US LNG. .
One-off natural gas prices in Europe have historically been lower than in Asia; however, this year, European natural gas prices are following Asian spot LNG prices more closely to attract flexible LNG supplies from around the world to fill storage inventories.
A severe winter in the U.S. could cause domestic markets to have to compete with hungry Asian and European buyers, which would raise prices.
Reference prices in the U.S. Henry Hub natural gas market and prices in the U.S. spot LNG market have been lower than international natural gas and spot LNG prices this year. This price difference has supported record volumes of LNG exports to the United States. US LNG exports also increased due to the new added export capacity in 2020. The final liquidation units were commissioned to Free shipping, Cameron, i Corpus Christi LNG, and the rest of the small units were put into service in LNG on the island of Elba. The new units increased the total US LNG export capacity by 2.7 Bcf / d combined for a maximum total capacity of 10.8 Bcf / d.
Similar to 2020, Asia remains the top destination for LNG exports to the United States, accounting for 46% of total exports during the first half of the year. Asia was followed by Europe, which had an average six-month share of 37%. Exports to Latin America also increased, especially to Brazil, which is experiencing the worst drought in 90 years.
A severe winter in the US could easily lead to an even crazier rise in natural gas prices.
By Alex Kimani for Oilprice.com
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