US Natural Gas Prices Near 30-Month Low Amidst Increased Output and Decreased Usage

Highlights

• 50% collapse in gas futures since beginning of year
• Record-high inventories expected before next winter
• Gas usage expected to decrease despite increased LNG exports

Overview

U.S. natural gas prices have fallen to a nearly a 30-month low for the second time this year. They dropped below $2 per million British thermal units (mmBtu) early in the session.

At 12:00 GMT, May natural gas futures are trading $2.062, down $0.154 or -6.95%. On Friday, the United States Natural Gas Fund ETF (UNG) settled at $6.95, up $0.27 or +3.97%.

Gas futures have experienced a 50% collapse since the beginning of the year, driven by increased output and largely mild weather this winter.

The natural gas in storage in the U.S. is currently 21% higher than average. This will cause record-high inventories before next winter.

US Gas Production Expected to Hit Record High Despite Reduced Drilling from Major Producers

Despite major gas producers reducing drilling, gas that comes up with oil will continue to rise in the largest shale fields. However, analysts say that gas prices are not low enough to prevent output gains.

According to the U.S. government, U.S. gas production is expected to reach 100.67 billion cubic feet per day (bcfd) this year, up from last year’s record of 98.09 bcfd. Additionally, U.S. drillers have 160 rigs seeking gas, an increase of 16% from a year ago.

US Gas Usage to Decrease Despite Increased LNG Exports, Freeport LNG Plant Resumes Production

The projected U.S. gas usage, including exports, is expected to decrease to 107.3 bcfd this year from last year’s record of 107.4 bcfd. This drop is due to a decline in domestic consumption across residential, commercial, industrial, and power generation customers.

Despite low gas prices, the 14% increase in U.S. liquefied natural gas (LNG) exports will not offset the projected usage drop. However, Freeport LNG’s export plant in Texas has resumed production after an eight-month outage.

Haynesville Shale Gas Output Set to Reach New Highs Despite Drilling Cuts in Other Areas

Despite some gas producers cutting drilling, gas output in the Haynesville shale field is on track to reach fresh highs in March and April.

Jacques Rousseau, a managing director at research firm ClearView Energy Partners LLC, explains that about a third of U.S. gas production is associated gas – produced from oil wells. He believes that this production is unlikely to decline given current oil prices.

Technically Speaking…

Earlier today, the promising closing price reversal bottom from Friday was unsuccessful. However, but the market is already preparing for another one.

Back-to-back closing price reversal bottoms will send a strong signal that the shorts are covering. And perhaps aggressive speculative buyers are returning.