Analysts at Fitch Solutions Country Risk and Industry Research announced in a new report that a shift in fundamentals has triggered a “significant” change in their natural gas price outlooks for 2023.
“Weather-related weaker domestic demand and market concerns for an impending economic slowdown [are] conspiring to lower prices from recent highs,” the analysts stated in the report, which was sent to Rigzone last Friday.
“We have revised our forecast natural gas prices for the U.S. and Europe lower due to the weak price performance to start the year, however we hold a bullish view for prices from current spot price levels, as fundamentals remain tight and the prospect of supply disruptions from Russia and renewed Chinese consumption of LNG pose material risks for 2023,” the analysts added.
“Natural gas in storage in both the U.S. and Europe remains well above historic averages for this time of year. This limits the prospect of a near-term shift in higher pricing as weather-related demand spikes are not expected to bolster demand for either region,” the analysts continued.
In the report, the analysts revealed that they now expected Dutch TTF front month prices to average EUR70/MWh in 2023, which they highlighted was down 44 percent from their previous forecast, and UK NBP front month prices to average GBp160/therm, which they outlined was down 41 percent from their previous projection.
The analysts also revealed in the report that they now expect the annual Henry Hub price to return to 2021 levels this year.
“In our view, front-month price will average at $3.6/MMBbtu in 2023, which marks a 45 percent decline from the $6.5/MMBtu recorded last year,” the analysts stated in the report.
“The U.S. natural gas market has seen a severe selloff over January-February 2023, with the price declining by over 50 percent. There were several drivers that fueled the selloff,” the analysts added.
“First, the U.S. Northeast experienced a milder-than-expected winter, limiting the demand for gas for heating from the residential and commercial sectors. Secondly, the domestic gas market was well-supplied due to a robust shale gas production level, driven by the Marcellus, Permian and Haynesville, and lower demand from the LNG industry amid the delay to the partial resumption of operations of Freeport LNG from January 2023 to February/March 2023,” the analysts went on to state.
US NatGas Futures Continue to Slump
In a market note sent to Rigzone on March 29, Emily McClain, Rystad Energy’s Vice President of Gas Markets Research, outlined that U.S. natural gas futures “continue[d] to slump” last week, “tempting the sub-$2.00/MMBtu range again”.
McClain highlighted that this was “triggered by an extension of the recent winter seasons’ trend of steady gas production, alongside persistent mild weather driving sustained declines in demand for heating, adding downward pressure on natural gas prices in the short-term”.
“Though some cold days are projected in the weeks ahead for the Pacific and Mountain regions, the short-term weather outlooks signals near-normal temperatures over the next two weeks -subjecting gas to lighter demand conditions in the first two weeks of April,” McClain said in the note.
“Mild weather has helped to support low storage pulls throughout the withdrawal season, pushing gas inventories more than 20 percent above the five-year average for the week ending 17 March. While we expect this [last] week to show another minimal withdrawal, storage injections should be realized next week – further loosening U.S. gas prices,” the Rystad VP added in the note last week.
In the note, McClain also stated that there is some potential upside to prices “as Freeport LNG advances feedgas deliveries and subsequent LNG exports in the coming weeks”.
“The facility has managed to achieve feedgas levels near 1.0 Bcfd in the second half of March and climbing,” McClain said.
“Now with the plant having gained full approval to move ahead with production from all three trains, the rise to levels in excess of 2.0 Bcfd is only a matter of time. Freeport LNG and all other facilities maintaining robust production levels, monthly U.S. LNG exports are expected to exceed 12 Bcfd for the remainder of the year,” McClain added.
The Henry Hub price closed at under $2.0/MMBtu on March 29, at $1.91/MMBtu, before jumping back above $2.0/MMBtu on March 30. The commodity closed at $9.68/MMBtu on August 22, 2022, and stood at $6.97/MMBtu on December 15, 2022.
Henry Hub’s highest 2023 close, so far, came on January 4, at $4.17/MMBtu. Its lowest 2023 close, so far, was seen on March 29.
To contact the author, email andreas.exarheas@rigzone.com
Photo Credit – iStock.com/FlutterbyPhoto
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