Here is Rystad Energy’s weekly North America gas and LNG market update from analyst Ade Allen:
It’s an understatement to say that US gas markets have had a whirlwind year - but the rollercoaster ride is far from over as winter beckons.
Market participants have been forced to adapt their strategies in response to rising demand, geopolitical complications and supply bottlenecks.
Earlier this year, the overarching sentiment was severe supply tightness, and most market hawks were confident that double-digit prices were imminent.
The importance of US LNG exports to Europe is increasing further as one of the only immediate solutions to the gas shortage currently gripping Europe.
However, the first half of the year presented some significant headwinds as dry gas supply failed to meet expectations.
Supply chain bottlenecks and capital-disciplined operators have served as the primary inhibitors of significant supply growth, but an uptick in dry gas supply is emerging.
US production momentarily passed the 100 Bcfd threshold last week, albeit just for a short period.
Even increased production is unlikely to temper prices though as drillers struggle to keep up with soaring domestic and international demand.
Further, storage levels are far below the five-year average and have shown little sign of making up ground despite winter on the horizon.
Market participants are trying to decide if the gains are a result of short-term responsiveness to price or whether the growth is structural due to increased spending in the second half of the year.
Our analysis points to the latter as we expect medium-term growth of 8.25% over the next two years.
On the demand side, a sweltering summer pushed power burns to previously unseen levels.
The Freeport LNG explosion immediately changed the market dynamics by reducing overall demand by 2 Bcfd.
Henry Hub prices on the precipice of $10/MMBtu were short-lived and cratered immediately.
However, as record temperatures lingered, the narrative implied that record gas-for-power generation could create some buoyancy for the overall demand picture.
The combination of lagging supply and extreme power demand led to some surprising draws in July.
The specter of winter is looming over the market, and the large disparity of pricing outcomes is becoming more divergent.
High gas prices are expected to stick around for a while, with the threat of a late-season tropical storm or hurricane and the risk of a severe winter potentially triggering an even higher price situation.
We also anticipate September power burns to remain strong compared to the same month last year.
Domestic gas balances are setting Henry Hub prices for increased volatility heading into winter as the market struggles to find equilibrium between upside and downside catalysts as End of Season (EOS) draws near.