Update on US Henry Hub Natural Gas Prices – December 2022
A cold weather snap forecast across much of the United States is driving demand for natural gas as a heating fuel higher. Prices of front month Henry Hub Natural Gas Futures have risen over the past week as a result. The front of the curve has moved more than the rest of the curve. The curve is now close to where it was two weeks ago.
Natural gas in storage is within seasonally normal range. Since June 2022, when Freeport LNG Terminal had to shut down after a fire, natural gas storage in the US has been ramped up as the gas produced in the US can no longer be exported at the same volume as prior to the shut-down. Freeport LNG accounts for close to 20% of US export capacity. Its re-opening has been delayed many times and the latest guidance from Freeport is a partial opening in mid-December 2022 and full production in March 2023 . However, in an email statement to Reuters they have pushed the reopening to end-of-year , and we remain sceptical that there will be any flow of LNG from the terminal this side of the of the New Year.
Ample storage could drive US natural gas prices lower when the cold weather snap passes.
Europe has been able to fill its natural gas storage capacity to close to 90% coming into the start of the winter period (October 2022) and is now drawing on that capacity at a slower than expected rate due to thrifting and an initially milder-than-expected weather pattern. However, colder weather has arrived, which could drive higher demand. Natural gas flows to Europe from Russia have slowed to a trickle and hence the region is reliant on Liquified Natural Gas from elsewhere. Unfortunately, with Freeport LNG offline, the US will not participate fully in meeting this demand over the coming weeks, but US Henry Hub may get a boost when Freeport LNG opens.
The European Union is currently trying to implement a price cap on imports. There is no final deal to speak of, but the European Commission’s proposal, is for a market correction mechanism that would kick in when the price of month-ahead contracts on the Dutch Title Transfer Facility exceeded €275 ($290) per megawatt hour and the gap between world prices was greater than €58 . Any success in approving this price cap, could limit upside for US Henry Hub used as feedstock for LNG exports to Europe. However, with the price gap between US and European natural gas prices being so wide (almost 6 times ), we believe the upside could nevertheless very large.
Source:
1 FREE PORTING NEW ROUTER
2 Reuters
3 Bloomberg 13/12/2022
4 WisdomTree calculation on 13/12/2022 using Dutch TTF Gas 1st Line Financial Futures (USD/MMBTU) as published by ICE Endex who convert megawatt hour to Metric Million British Thermal Unit (MMBTU) and USD using the WM/Refinitiv Closing EURUSD Spot Rates as published by Refinitiv at 4 pm UK time and Henry Hub Front month futures.
Natural gas in storage is within seasonally normal range. Since June 2022, when Freeport LNG Terminal had to shut down after a fire, natural gas storage in the US has been ramped up as the gas produced in the US can no longer be exported at the same volume as prior to the shut-down. Freeport LNG accounts for close to 20% of US export capacity. Its re-opening has been delayed many times and the latest guidance from Freeport is a partial opening in mid-December 2022 and full production in March 2023 . However, in an email statement to Reuters they have pushed the reopening to end-of-year , and we remain sceptical that there will be any flow of LNG from the terminal this side of the of the New Year.
Ample storage could drive US natural gas prices lower when the cold weather snap passes.
Europe has been able to fill its natural gas storage capacity to close to 90% coming into the start of the winter period (October 2022) and is now drawing on that capacity at a slower than expected rate due to thrifting and an initially milder-than-expected weather pattern. However, colder weather has arrived, which could drive higher demand. Natural gas flows to Europe from Russia have slowed to a trickle and hence the region is reliant on Liquified Natural Gas from elsewhere. Unfortunately, with Freeport LNG offline, the US will not participate fully in meeting this demand over the coming weeks, but US Henry Hub may get a boost when Freeport LNG opens.
The European Union is currently trying to implement a price cap on imports. There is no final deal to speak of, but the European Commission’s proposal, is for a market correction mechanism that would kick in when the price of month-ahead contracts on the Dutch Title Transfer Facility exceeded €275 ($290) per megawatt hour and the gap between world prices was greater than €58 . Any success in approving this price cap, could limit upside for US Henry Hub used as feedstock for LNG exports to Europe. However, with the price gap between US and European natural gas prices being so wide (almost 6 times ), we believe the upside could nevertheless very large.
Source:
1 FREE PORTING NEW ROUTER
2 Reuters
3 Bloomberg 13/12/2022
4 WisdomTree calculation on 13/12/2022 using Dutch TTF Gas 1st Line Financial Futures (USD/MMBTU) as published by ICE Endex who convert megawatt hour to Metric Million British Thermal Unit (MMBTU) and USD using the WM/Refinitiv Closing EURUSD Spot Rates as published by Refinitiv at 4 pm UK time and Henry Hub Front month futures.