Henry Hub gas prices should remain depressed in the first half of this year.
That’s according to a new BofA Global Research report, which outlined that the commodity will average $2.45 per million British thermal units (mmbtu) during the period, “before rising in 2H23 as the impact of low prices on production becomes clearer”.
“Even so, we remain bearish versus the curve for the year and think prices could fall to $2 or lower if the supply/demand response is deemed inadequate,” the BofA Global Research report stated.
“We are bullish versus the curve in 2024 and forecast prices to rise to $4/mmbtu as balances start to clean up,” the report added.
In the report, BofA Global Research warned that there are “several notable risks” to its forecasts this year and next.
“First, the probability of El Niño weather patterns taking hold this summer and fall are above 50 percent, which could bring a mild summer and cooler winter in the South,” the BofA Global Research report said.
“Second, a larger than expected recession later this year could bring weaker demand than we currently forecast. Third, the U.S. E&P sector is in much better financial shape today than in prior years, which may mean a more muted response to low prices versus history,” the report added.
“Freeport could also see further delays and a loose global LNG market could cause a repeat of 2020 U.S. export curtailments,” the report continued.
Back to Where it Started
In its latest report, BofA Global Research noted that the U.S. natural gas market is back to where it started in the third quarter of 2020, “after a spate of mild weather caused Henry Hub prices to slide below $2.30/mmbtu”.
“Nine months ago, ahead of the Freeport LNG accident, gas was trading +$9/mmbtu, U.S. inventories were 300 billion cubic feet under seasonal five-year average levels, and there was concern about inventories running dangerously low,” the report stated.
“Since then, mild weather and strong production growth caused the balances to flip, with inventories recently rising to more than 180 billion cubic feet above seasonal norms, a dynamic that has also played out in Europe,” the report added.
“The recent reversal of fortune has sent gas prices lower in search of a response from supply or demand. Fortunately, 4Q earnings releases suggest E&Ps are cutting rigs, while gas’ share of thermal generation has ticked higher. But the market likely requires persistent low prices ahead of summer to avoid a storage containment issue this fall,” the report continued.
EIA Forecast
In its latest short term energy outlook, which was released earlier this month, the U.S. Energy Information Administration (EIA) projected that the Henry Hub spot price would average $3.40/mmbtu in 2023 and $4.04/mmbtu in 2024. The EIA expects the commodity to average $3.13/mmbtu in the first quarter of 2023, $3.27/mmbtu in the second quarter, $3.47/mmbtu in the third quarter, and $3.76/mmbtu in the fourth quarter, according to the latest STEO.
“We forecast that the Henry Hub natural gas spot price will average $3.40 per million British thermal units in 2023, down almost 50 percent from last year and about 30 percent from our January Short-Term Energy Outlook forecast,” the EIA noted in the February STEO.
“We revised our outlook for Henry Hub prices as a result of significantly warmer than normal weather in January that led to less than normal consumption of natural gas for space heating and pushed inventories above the five-year average,” the EIA added.
Current Price
At the time of writing, the Henry Hub price is trading at $2.19/mmbtu. The commodity saw a peak close in 2022 of $9.68/mmbtu on August 22, before dropping to under $5/mmbtu in October last year. Since then, the commodity rose back above $7/mmbtu in November 2022, before dropping steadily to a close of just over $2/mmbtu on February 21.
To contact the author, email andreas.exarheas@rigzone.com
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