The Henry Hub price is projected to drop in 2023 and 2024 in the U.S. Energy Information Administration’s (EIA) latest short term energy outlook (STEO).
In 2023, the commodity will average $4.90 per million British thermal units (MMBtu) before dropping to $4.80 per MMBtu in 2024, according to the STEO, which showed that the Henry Hub price averaged $6.42 per MMBtu in 2022.
“We expect the Henry Hub natural gas spot price to average near $5.00 per MMBtu in 1Q23,” the EIA said in its latest STEO.
“The Henry Hub price began January below $4.00 per MMBtu as a result of warmer than normal temperatures across much of the country. However, we expect that prices will rise back above $5.00 per MMBtu in late January and stay above that in February as temperatures in our forecast fall and liquefied natural gas exports from Freeport LNG resume, increasing demand for natural gas,” the EIA added.
“Once heating demand subsides this winter, we expect prices to average near $5.00 per MMBtu for the last three quarters of 2023. Increases in U.S. natural gas production, relatively flat LNG exports, and declining domestic consumption in the electric power and industrial sectors will limit upward pressure on prices in 2023,” the EIA continued.
“Despite our expectation that new LNG export facilities and expansion projects will come online in 2024 we expect natural gas prices to be relatively flat, with the possibility of lower prices, due to continued increases in U.S. natural gas production,” the EIA went on to note.
The EIA projected that the Henry Hub price would average $6.48 per MMBtu in 2022 and $5.43 per MMBtu in 2023 in its previous STEO, which was released last month. That STEO did not offer a Henry Hub price forecast for 2024.
Counter Seasonal Spike
In a report sent to Rigzone earlier this month, BofA Global Research stated that natural gas prices spiked counter-seasonally last year in the U.S. on the back of extreme tightness in global gas and power markets, “with the NYMEX front-month contract hitting a high of $9.68 per MMBtu in August 2022”.
“Since then, however, prices have quickly retraced,” BofA Global Research said in that report, adding that natural prices at the Henry Hub had “rolled over largely because U.S. natural gas inventories … normalized over a short period of time”.
The “bear roll down” in prices is unlikely to last into 2024 for several reasons, however, the BofA Global Research report outlined.
“First, U.S. demand rigidities such as continued coal-fired plant retirements are likely to lead to a structurally higher price in the medium term. Second, LNG export growth should lift U.S. natural prices closer to global prices as more capacity comes on line. And third, U.S. nat gas supply growth could be challenging into the end of the decade,” the report stated.
“Simply put, U..S natural gas production is not responding well to rising prices, with total U.S. monthly well completions failing to react to the rapid moves in Henry Hub prices. More worryingly, well productivity is down 26 percent on average in 2022 for privates and it is lagging in most U.S. basins despite the increase in well completions,” the report added.
A likely reduction in the pace of drilling and completion activity across private gas companies in 2023, coupled with rising LNG exports into the middle of the decade, should support a more constructive U.S. nat gas price environment into 2024, the BofA Global Research report stated.
To contact the author, email andreas.exarheas@rigzone.com
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