Cold winter will not save U.S. gas prices from tumbling

Hands holding a gas flame
Source: DollarPhotoClub

Those in the gas industry who counted on the repetition of the last year’s scenario when cold weather pushed U.S. natural gas prices to double digits will be disappointed – Financial Times believes. The relatively mild start of the winter and ever-increasing production from prolific formations such as the Marcellus will push natural gas prices even lower; the analysts believe.

FT reports that gas delivered over the weekend at the Leidy trading hub in rural Pennsylvania, which helps supply the US northeast, sold for $0.80 per million British thermal units — about a tenth of the price in Europe, according to ICE Data.

Meanwhile, Henry hub gas futures traded on the New York Mercantile Exchange are down 13 per cent since the official start of winter to $3 per million British thermal units, the lowest level in more than two years.

Unlike last year when gas stocks were depleted due to the polar vortex that swept over parts of the U.S., causing the futures prices to jump above $6 per mBtu, this year’s gas stocks are just 2.5 per cent below average, according to EIA.

With the national gross production of natural gas in the U.S. still on the up – EIA estimates the Marcellus Shale’s gas output exceeds 13bn cubic feet per day – unless the country experiences truly arctic weather sustained over a long period of time the gas reserves will hardly be dented. With the current weather, the EIA projects national inventories will be 1.43tn cubic feet at the end of March, below average but still comfortable.

It seems that until the U.S. starts exporting its gas – the first of the planned LNG terminals are scheduled to come online in 2015 – natural gas prices are set to tumble. With the current levels of production it is unlikely that even a very cold winter can stop the decline.

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