Natural gas prices have recently declined back below $7/MMBtu. What readers must realize is that the heightened volatility we are seeing in natural gas now is going to be the "normal volatility" going forward. As the U.S. gas market becomes increasingly tied to the global LNG market, we are going to see these giant swings return. We are no longer in the "shale era" price band.
So what is it going to take for natural gas prices to go back into the "shale era" band, and what will it take for the natural gas market to materially loosen?
Above is the chart from IHS, which shows how much domestic demand and exports are set to rise in the coming years. In 2022, we are expected to see demand increase by ~4 Bcf/d followed by continued increases to 2025.
And based on the latest IHS supply forecast, we aren't expected to hit ~99+ Bcf/d of production until 2024.
In essence, in order for the natural gas market to materially loosen here in the U.S., we need ~99 Bcf/d today. With production still running between ~94 to ~95 Bcf/d, this is unlikely.
By year-end, we will see production increase to that ~98 to ~99 Bcf/d level. But by then, demand increases will have already taken place and it's too late for the market to loosen.
This is the reason why natural gas prices will keep moving higher throughout the summer. The market is tight and there's nothing that's going to change it in the near term.
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