Natural Gas Prices Will Fluctuate in a Stable Price Range in 2024
Alexey Afanassievskiy | Apr 18, 2024 08:50AM ET
In March 2024 the natural gas market was fluctuating, with prices rising and falling. Henry Hub's futures were hitting $1.70 per MMBtu and expected to surpass $2.00 per MMBtu from June to November. The LNG market is also adapting to the current paradigm, with reduced shipments to export hubs and initiatives, reflecting the industry's adaptability amidst geopolitical pressures.
Moreover, in 2024, natural gas consumption in the United States will continue to grow in all sectors, except industrial, where a decrease is expected. Such sectoral changes in natural gas consumption largely depend on the weather. Supply will also grow and according to Morgan Stanley, it is even expected to reach multi-decade highs.
Since natural gas consumption and production is heavily influenced by weather patterns, geopolitics and industrial changes, the prices will continue to fluctuate, but will remain in a more or less stable price range.
Besides these factors influencing gas market dynamics, there are major factors pushing gas prices upwards and downwards. Let’s delve into them.
Gas market dynamics
According to the EIA's forecasts, in 2024, the consumption of natural gas for electricity generation in the United States will increase by about 10% compared to the five-year average. Such a rise correlates, first of all, with weather conditions. Demand is affected by weather patterns, notably colder temperatures on the East Coast.
Calculations of the Ministry of Energy show that the total natural gas consumption in the residential and commercial sectors will increase by 5% compared to 2023. The augmentation is due to warmer weather conditions in January and December 2023, which reduced natural gas consumption for heating. During the cold winter, residential and commercial buildings use more natural gas for heating.
Moreover, gas prices are strongly connected to geopolitical issues. Major producers are making strategic moves to adapt to price trends and geopolitical pressures. These factors are shaping a dynamic and complex market landscape.
Natural Gas price dynamics
Source: Investing.com
What’s new in the “gas world”?
First of all, the transformation, during which liquefied natural gas, once considered a substitute for natural gas, has evolved into a distinct product rather than an alternative, has come to the end this year.
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Liquefied and natural gas necessitate different infrastructures, with special facilities built for the former. Liquefied gas is anticipated to become more expensive, with profitability increasing as infrastructure development progresses. Thus, there will be a gradual shift away from natural gas in favor of liquefied gas as the preferred option.
During the COVID-19 pandemic, there was widespread talk of the European economy's future being tied to a shift towards green energy. However, that greenwashing narrative is gradually losing relevance, with increasing attention turning towards LNG instead. Both the US and Europe have made significant investments in LNG.
Thanks to the switch to LNG, Europe was able to survive the winter season with record levels of gas reserves in storage, which put the region in a much better position to overcome the ongoing energy crisis. Gas storage facilities in the EU were filled by 58.72%, which is about 3 percentage points higher than the previous high set last year.
Furthermore, there's a shifting paradigm in gas pricing, resembling the oil market, where trading dynamics largely dictate price fluctuations. This transition means the era of steep lows or soaring highs in gas prices is likely behind us, as the market settles into a new, more stable range of pricing.
What will 2024 bring to the gas market?
In summary, natural gas consumption in the United States and EU will increase in all sectors this year. The American industrial sector expects the least changes: the demand for gas there will even decrease slightly.
The imbalance of supply and demand will lead to higher gas prices in all sectors of the economy, except industrial. According to the U.S. Department of Energy forecasts, the spot price of natural gas at Henry Hub in the United States in 2024 and 2025 will be, on average, higher than in 2023. At the same time, it will remain lower than $3 per 1 MMBtu.
Why is gas becoming such a hot topic everywhere? For instance, the matter is that its attractiveness to investors is growing at a rapid pace. LNG is becoming one the most important derivatives, and not after oil, but along with it. Thus, gas is transforming into a very important commodity with its pricing logic not tied to oil. And its importance will only grow and increase over time.
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