26/12/24
Viewpoint: US gas market poised for more volatility
New York, 26 December (Argus) — US natural gas markets may be subjected to more
dramatic price swings in 2025 as growing LNG exports and increasingly
price-sensitive producers place greater pressure on the US' stagnant gas storage
capacity. Those price swings could pose challenges for consumers without ample
access to gas supplies, as well as producers interested in keeping some output
unhedged to capture potentially higher prices without taking on excessive
financial risk. But volatility may also present opportunities for traders
looking to exploit unstable price spreads, and for producers that can adapt
their operations to fit a more unpredictable pricing environment. Calm before
the storm High storage levels and low spot prices this year — averaging
$2.11/mmBtu through November this year at the US benchmark Henry Hub — triggered
by an unusually warm 2023-24 winter, may have obscured some of the structural
factors pushing the US gas market into a more volatile future. But those
structural factors remain and loom increasingly large for prices. The US has
moved from a roughly 60 Bcf/d (1.7bn m³/d) market eight years ago to a more than
100 Bcf/d market today, "and we haven't grown our storage capacity at all", Rich
Brockmeyer, head of North American gas and power at commodity trading house
Gunvor, said earlier this year. As supply and demand for US gas grow, the
country's roughly 4.7-Tcf storage capacity becomes ever less effective in
stemming demand shocks, such as extreme winter weather events, which can more
rapidly draw down inventories than in years past. Additionally, a growing share
of US gas is being consumed by LNG export terminals being built and expanded on
the US Gulf coast. When those facilities encounter unexpected problems and cease
operations — as has happened numerous times at the 2 Bcf/d Freeport LNG terminal
in Texas in recent years — volumes that were previously being liquefied and sent
overseas were instead backed up into the domestic market, crushing prices. More
LNG exports may mean more opportunities for such supply shocks. US LNG exports
are expected to increase by 15pc to almost 14 Bcf/d in 2025 as operations begin
at Venture Global's planned 27.2mn t/yr Plaquemines facility in Louisiana and
Cheniere's 11.5mn t/yr Corpus Christi, Texas, stage 3 expansion, US Energy
Information Administration data show. Spot price volatility will be most acutely
felt in regions like New England that lack underground gas storage. "In areas
like the Gulf coast, where you have a lot of storage, it won't be a problem,"
Alan Armstrong, chief executive of Williams, the largest US gas pipeline
company, told Argus in an interview. Producers' trade-off Volatile gas markets
are a mixed bag for producers, many of whom profit from volatility while also
struggling to plan and budget based on uncertain revenues for unhedged volumes.
Though insufficient gas storage deprives the market of stability, "from the
standpoint of a marketing and trading guy that's trying to manage my gas supply
to customers and my trading book, I love volatility",said Dennis Price, vice
president of marketing and trading at Expand Energy, the largest US gas producer
by volume. BP chief financial officer Sinead Gorman in November 2023
specifically named Freeport LNG's eight-month-long shutdown in 2022-23 from a
fire as a driver of volatility in the global gas market. The supermajor was able
to exploit the "incredibly fragile" gas market, she said, which was a key factor
driving the success of its integrated gas business. "Those opportunities are
what we typically seek and enjoy," Gorman said. Increasingly, producers have
also been adapting to a more volatile market by switching production on and off
in response to prices, but often without revealing the price at which a supply
response will occur. Expand Energy, for instance, told investors in October that
it was amassing drilled but uncompleted wells and wells that had yet to be
brought on line, which it could activate relatively quickly when prices rise. It
declined to name the price at which that would occur. Market participants,
attempting to price in this phenomenon by anticipating producers' next moves may
respond more dramatically to supply signals than in the past, when production
was steadier. Producers' increased responsiveness to prices could help to
balance the market somewhat, though more aggressive intervention into operations
could take a toll on well performance and pipelines, FactSet senior energy
analyst Connor McLean said. Producers are "treating the reservoir itself like a
storage facility", Price said. By Julian Hast Send comments and request more
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