The U.S. Energy Information Administration (EIA) increased its Henry Hub price forecast for both 2024 and 2025 in its latest short term energy outlook (STEO), which was released last month.
In its June STEO, the EIA projects that the Henry Hub spot price will average $2.46 per million British thermal units (MMBtu) in 2024 and $3.24 per MMBtu in 2025. In its previous May STEO, the EIA projected that the Henry Hub spot price would average $2.18 per MMBtu in 2024 and $3.09 per MMBtu in 2025.
The Henry Hub spot price is expected to come in at $2.08 per MMBtu in the second quarter, $2.61 per MMBtu in the third quarter, $3.02 per MMBtu in the fourth quarter, $3.20 per MMBtu in the first quarter of next year, $3.04 per MMBtu in the second quarter, $3.31 per MMBtu in the third quarter, and $3.42 per MMBtu in the fourth quarter, the report showed.
The EIA’s May STEO forecast that the Henry Hub spot price would average $1.71 per MMBtu in the second quarter, $2.16 per MMBtu in the third quarter, $2.73 per MMBtu in the fourth quarter, $2.93 per MMBtu in the first quarter of next year, $2.84 per MMBtu in the second quarter, $3.19 per MMBtu in the third quarter, and $3.39 per MMBtu in the fourth quarter.
“We expect the U.S. benchmark Henry Hub natural gas spot price to rise in the summer, averaging just over $2.60 per MMBtu in 3Q24, up from an average of $2.12 per MMBtu in May,” the EIA noted in its latest STEO.
“Because of relatively flat production through the second half of 2024 and a seasonal increase in demand from the electric power sector, we expect storage injections will continue to be below the five year average (2019–2023), helping support higher prices,” it added.
“Storage injections two months into this injection season (April–October) have averaged 12 percent below the five-year average injections for this period. Nevertheless, U.S. storage inventories are starting the summer with more natural gas than usual,” it continued.
“Although we forecast an increase in natural gas prices for the summer months as storage inventories rise by less than the five-year average, we expect inventories will remain above the five-year average and keep prices below $3.00 per MMBtu on average in 3Q24, similar to the $2.59 per MMBtu average in 3Q23,” the EIA went on to state.
Natural gas storage inventories were 24 percent above the five year average at the end of May, the EIA highlighted in the STEO, adding that it forecasts storage inventories to end the summer injection season on October 31 at six percent above the five year average.
“If U.S. natural gas production is lower than our forecast and consumption in the electric power sector to meet air-conditioning demand increases more than we expect, natural gas prices could be higher than forecast,” the EIA said in the STEO.
Price Recovery
In a report sent to Rigzone by Fitch Group recently, analysts at BMI, a unit of Fitch Solutions, highlighted that, “after a record-low gas price environment from January to April 2024, May and June saw Henry Hub prices recover, breaking above $3.0 per MMBtu”.
In that report, the analysts said the U.S natural gas market has experienced elevated price volatility over the initial months of 2024, adding that, in January, prices saw a short-lived spike caused by a cold snap, which they said raised demand and disrupted gas production in some of the key shale basins.
“However, the bullish factors were soon overtaken by broader bearishness, exacerbated by the expectation of lower gas demand from residential users in the last weeks of winter amid higher-than-average temperatures in the United States,” the BMI analysts stated in the report.
“This was coupled with some operational disruptions at Freeport LNG, which weakened the outlook for near-term demand for gas from the LNG sector and broader bearish macroeconomic factors that dominated the narrative over Q124,” they added.
The analysts stated in the report that the anticipated change in sentiment in May has been primarily driven by the improving outlook on the domestic and global demand for natural gas and LNG.
“Domestically, the seasonally higher demand in Q2-Q3 2024 is driven by the stronger demand for power generation from cooling devices, which in turn raises demand for natural gas,” the analysts said in the report.
“Furthermore, as of mid-May 2024, Freeport LNG resumed operations and LNG demand for feedstock gas has been increasing. This is also supported by the foreign demand for U.S.-sourced LNG,” they added.
In the report, the BMI analysts outlined that they expect Henry Hub prices to continue on an upward trajectory over the second half of the year.
“To meet our 2024 Henry Hub annual price average of $2.8 per MMBtu, prices are set to average at $3.4 per MMBtu over the remainder of the year,” they said.
“We continue to expect above-average temperatures for the vast majority of the U.S. in Q3 2024, which will support higher demand for natural gas over that period. We currently expect U.S. natural gas demand to grow by 1.9 percent year on year in 2024, a forecast in which we have incorporated the impacts of the lower gas price environment,” they added.
“On top of that, we expect the U.S. LNG sector to sustain strong demand for feedstock gas, in line with our view of strengthening LNG exports in 2024,” they continued.
The analysts also noted in the report that, in their view, “supply dynamics are also expected to support price recovery”.
“In light of the gas price slump in early 2024, a number of key natural gas producers in the U.S. announced cuts to production and spending for the year,” they said.
“As a result, we cut our natural gas production forecast to 1.2 percent year on year for 2024, which marks a sharp decline from the 5.8 percent year on year growth in 2023,” they added.
The BMI analysts warned in the report that the risks to Henry Hub prices are tilted to the downside.
“We recognize moderate downside risks. First, we recognize upside risks to our current natural gas production forecast of 1.2 percent year on year growth in 2024,” they said.
“Furthermore, we also highlight the elevated level of natural gas inventories, which could curb gas price growth. The volume of working gas in storage remains 7.1 percent above historical highs in 2024,” they added.
“However, strengthening demand from the power and LNG sectors is expected to outbalance impacts of higher supply, allowing prices to continue to grow over H224,” they continued.
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