The United States natural gas market has imploded with prices dropping 80% since summer. Natural gas futures for March delivery fell below $2 per million BTUs this week for the first time since 2020, after hitting $8.37 on June 8, 2022. That is a nearly $6.50 selloff. It marks a major reversal when shortage fears sent prices to the highest level in 14 years.
The huge swing is a result of a drop in demand for liquified natural gas in the U.S. but also globally. Abnormally mild temperatures this winter have eroded energy demand, causing inventories to swell above usual levels and prices to plunge more than 70% since November. A much-delayed restart of the Freeport LNG terminal in Texas has also weighed on prices as its shutdown after a June explosion curbed export demand. And it’s not clear if the market has reached a bottom yet.
Darin Newsom, Sr. Market Analyst with Barchart says, “We’re not seeing the big you know 40 to 50-cent moves anymore at this point you know it’s just grinding a couple 3 cents, maybe 5 to 6-cents here and there and that just is against natural gases nature. So, I don’t know that we’re going to stay here all that long when it turns it’s probably going to be a very volatile move. We just haven’t seen signs of it yet.”
This is good news for farmers as it has lowered the price for heating livestock facilities this winter, drying grain and has helped ease fertilizer prices. The natural gas prices are also welcomed in areas that remain dry and will rely on irrigation again this growing season. So, is it time to lock in some supplies?
Newsom says prices certainly look attractive for end users, but the market can be unforgiving so he is being cautious, “I would hold off until we get some sort of buy signal because you know you don’t want to be too early. You don’t want to be the first one to buy into natural gas, but you certainly don’t want to be last.” He suggests end users keep a close eye on the market because when it turns it will be a very volatile move and will happen very quickly.”
Global demand has also dropped with many Asian nations returning to coal. The European Union also slashed demand for heating this winter by almost a fifth with voluntary cutbacks and a mild winter easing energy crisis and keeping stockpiles above normal levels. Prices there are at their lowest levels since August 2021.
