Where are natural gas prices heading?

Factors that could impact the volume of LNG exports in the next months include the planned outage at Cove Point in October and Freeport LNG resuming partial operations by mid-November. EIA forecasts total US liquefied natural gas exports to account for 12.3 Bcf/d in 2023.

Spot prices at the US benchmark averaged $8.80 in August, versus $7.28 in July, the agency said in the latest edition of its monthly Short-Term Energy Outlook, published on Wednesday.

The general downward pressure for natural gas prices that could continue into 2023 comes as EIA expects US dry gas production to average 99.0 Bcf/d in Q4, up from 94.6 Bcf/d in 1Q, 2022.

Output will then jump to 100.4 Bcf/d in 2023, the latest STEO data show. Natural gas prices surged during August as continued strength in power burns kept inventories at a deficit to the prior five-year average.

US natural gas in storage concluded August at 2.7 Tcf, 12% below the five-year average, EIA said. forecasted inventories will end the injection season at more than 3.4 Tcf, which would be 7% below the five-year average according to researchers.

Increases across all consuming sectors are also predicted, but consumption is expected to fall by 1.9 Bcf/d in 2023 because of declines in consumption in the industrial and electric power sectors.

The Environmental Protection Agency (EPA) this week denied Cheniere’s request for exemption from air pollution rules. On the other hand; Cheniere criticized the EPA’s decision that brings about unnecessary expenditures, but the company does not expect it to have a material financial impact, nor will the decision limit LNG exports or disrupt operations in any way.

Cheniere is the largest US liquefied natural gas exporter. US gas prices opened lower Wednesday after news of the EPA’s decision. Mild weather and robust production have pushed Henry Hub Index down this week before the market was startled by the news amid commitment from Biden administration to supply Europe with more LNG.

With a US recession appearing more likely in 2023 and uncertainty spinning around natural gas flows from Russia to Europe, natural gas markets may be facing a bumpy road in the looming winter season.

The EU is seen on track to meet its natural gas storage targets ahead of schedule heading into winter, although a shutdown of the Nord Stream 1 pipeline has triggered fears of a looming recession in Europe as well.

The EU should also have sufficient gas supply for November and December, however, there is a supply risk for 2023’s Q1. The risk will increase if the Nord Stream 1 pipeline’s shutdown continues or is instead run at very low rates, and if there is a cold winter or late-arriving spring.