Front-month futures closed at US$2.45 per million British thermal units on February 09, 2023 in only the second percentile for all months since 1990, after allowing for the increase in core consumer prices.
Working inventories in underground storage were 17 billion cubic feet, above the prior ten-year average on February 03.
But that was a massive turnaround from a deficit of 427 billion cubic feet recorded as recently as September 09, 2022.
Mild weather has played a relatively small role in erasing the earlier deficit and transforming it into a large incipient surplus.
The number of heating degree days across the Lower 48 states so far this winter has been only 5% below the long-term average.
More important has been loss of exports following the explosion at Freeport LNG’s terminal and reduced consumption stemming from high prices through much of 2022.
Freeport’s eventual reopening should provide an outlet for some excess inventory, but with stocks in Europe also very full, exporters will have to compete for price-sensitive customers in Asia.
Slumping futures prices will discourage drilling and incentivize electricity generators to run their gas-fired units for more hours at the expense of coal.
The number of rigs drilling for gas has been essentially unchanged since the start of September - after increasing by more than 50% in the first eight months of 2022.
Discounted futures prices will also boost combustion from the power sector, helping limit the accumulation of inventories this summer.
The summer-winter calendar spread between July 2023 and January 2024 has slumped into a contango of more than US$1.10 per million British thermal units from a backwardation of more than 50 cents in August 2022.
Gas prices are now trading below the cost of coal, once the superior efficiency of gas-fired units is taken into account, which will encourage maximum gas burn this summer.
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