Scan to Download ios&Android APP

US natural gas production revitalised by exports to Europe

19:06, 15 March 2022

Share this article

Have a confidential tip for our reporters?

Natural gas derrick in a field
European countries are looking to the US for natural gas - Photo: Shutterstock

US natural gas production will climb with more exports headed to Europe, but analysts and industry insiders are already capping prices well below this winter’s high.

On Tuesday afternoon, April contracts stumbled by more than 1% to $4.60 per million British thermal units (MMBtu) from its opening at $4.68, fading fast from the heating season’s high of $6.70 MMBtu.

Natural gas spot prices dropped by $0.56 to $4.25 MMBtu ahead of warmer days in the forecast for the end of winter in the US.

Price caps

“US natural gas prices are effectively capped due to the limited number of LNG trains that are currently operating in the US,” Campbell Faulkner, senior vice president and chief data analyst at OTC Global Holdings, wrote in a note to clients on Tuesday. “(T)he takeaway for domestic natural gas is capped and at capacity.”

Driving the Henry Hub prices, he said, are the end of winter weather. The expected mild weather in the States will allow utilities to begin adding gas storage reserves in about two weeks. That’s seven days earlier than normal.

Production increase

For the last two years, natural gas production has remained flat around 88-92 billion cubic feet (Bcf). However, by the end of 2022, Shomik Sen, a data analyst for Gelber and Associates, told production could return to 2019 levels of 96.7 Bcf, largely due to European countries looking for alternatives to Russia’s natural gas.

The natural gas boom cycle ended in 2019 in the US, after nearly a decade of heavy drilling, which flooded the market.

Sen said US shipments to Europe should increase soon, as gas futures sold for a record high of more than $106 MMBtu on Monday.

Traders’ worries about limited supplies from Russia were soothed, as gas flow from the country remains high and liquified natural gas imports poured in from around the globe.

Kaushal Ramesh, senior analyst at Rystad Energy, said Europe cannot continue to depend on natural gas exports from Russia.

“The stability of Russian exports to Europe is far from guaranteed,” said Ramesh.

Idled gas fields

With crude oil hovering around $100 or more, and consumers looking for cheaper alternatives, natural gas companies are interested in resuming production.

After 2019, many natural gas fields – mostly in the Bakken and Appalachian basins in the US – went idle as prices plummeted for this commodity.

Alan Olson, executive director of the Montana Petroleum Association, told that, given current crude oil prices, his organisation is seeing growing interest in restarting shuttered natural gas wells in the Bakken oil fields.

However, the lack of workers and supply chain shortages have presented challenges to the industry.

“We are scrambling to find good employees and at the same time we’re still on the hunt for equipment,” Olson said, explaining when the fields went silent in 2019, many experienced miners headed to Texas for the Permian Basin.

Equipment supply chain problems

Drillers are finding production tubing and workover rigs are in short supply, something that is stalling the restart.

“The uptick in the economy with the downturn of the industry. It kind of turned into a perfect storm,” said Olson.

Last week, Occidental CEO Vicki Holub warned of supply chain problems, especially with steel for pipes and sand for fracking. Natural gas companies which don’t have those particular supplies will face production troubles.

“If you didn’t plan for growth, you’re not going to be able to achieve growth today,” she stated unequivocally during a session at the CERAWeek energy conference in Houston, Texas.


Read more

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?

Join the 400.000+ traders worldwide that chose to trade with

1. Create & verify your account

2. Make your first deposit

3. You’re all set. Start trading