Natural Gas Prices Plunge as Inventories Rise

The decline in natural gas prices surprised industry officials this week – dropping more than 30% – as news surfaced about the oversupply of natural gas becoming more severe.

Natural gas traded at Henry Hub on the New York Mercantile Exchange closed at $2.52 on Feb. 9, and by Feb. 14, the price had dropped to $1.629. One year ago, natural gas traded $3.68 for 30-day deliveries on NYMEX. This is the lowest price in 40 months.

Natural gas demand, which historically has been driven by colder weather in the winter months, declined last week because of mild weather. Natural gas production, which continues to set records, also is a major contributor to the oversupply. The decline in demand and increase in supply has created an increase in inventories, the Energy Information Administration stated in its recent Short-Term Energy Forecast.

“We forecast inventories will end this winter heating season (November–March) at about 1,910 Bcf, which would be 15% more than the five-year average,” EIA stated.

EIA also forecast soft prices, but not below $2.  “We forecast that mild weather for the remainder of first quarter of 2024 will keep the average Henry Hub spot price near $2.40 per million British thermal units (MMBtu) during February and March. But volatility could return if severely cold weather emerges, even for a short period,” EIA stated.

EIA forecasts U.S. natural gas production will increase in February and reach 105 Bcf/d by March as the weather-related disruptions subside and will stay close to that level for the rest of the year. EIA expects production to increase in 2025 to an average of more than 106 Bcf/d, which will set another production record if achieved.

EIA believes natural gas consumption will increase even though the agency forecasts milder weather.

“We estimate that more than 118 Bcf/d of natural gas was consumed in the United States in January, a new monthly record, driven by the electric power sector,” EIA stated. “Although our forecast assumes that the United States will see milder weather with 4% fewer heating degree days than is typical during February and March, we forecast that U.S. natural gas consumption will increase by 5% in the first quarter of 2024 (1Q24) compared with 1Q23, which was one of the warmest first quarters on record.”

EIA expects wind and solar power to increase. “We forecast U.S. solar generation will rise by 43% in 2024, and wind generation will rise by 6%,” EIA stated. “However, we revised our forecast generation from renewable sources down slightly in 2025 from last month’s STEO because of lower reported capacity additions from generators in recent months. That factor, along with slightly more total generation in 2025, increased our forecast of coal-fired electricity generation in 2025 in this month’s outlook.”

Alex Mills is the former President of the Texas Alliance of Energy Producers.