Barge delays at Algiers lock near New Orleans

Viewpoint: US gas market poised for more volatility

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 information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.