Natural Gas Poised for Bullish Continuation with Solid Demand
Moreover, the natural gas futures recently increased above $2.30 per MMBtu, approaching levels not seen in two months. This price increase is attributed to seasonal demand growth, record LNG exports, and a surge in natural gas usage in China’s transportation sector. Even as US production hits unprecedented highs, the expected rise in demand from power generation and industrial use suggests a tightening market ahead. While inventories remain slightly above average, potential disruptions from Gulf Coast weather events and increasing export activities could rapidly diminish these reserves, pushing prices further upward.
As per the latest data on 12th September 2024, the decrease in supply by 0.8% (0.9 Bcf/d), driven by a drop in dry natural gas production and net imports from Canada, indicates a potential market tightening. However, overall U.S. natural gas consumption has fallen by 3.0% (2.2 Bcf/d), including a significant 7.7% decline in natural gas used for power generation. Although there is a marginal increase in industrial consumption and a notable increase in residential and commercial usage, the overall drop in demand outweighs the reduction in supply. This suggests that the market might not immediately experience the effects of the reduced supply, potentially leading to price stability.
Moreover, the slight increase in natural gas deliveries to export terminals, up by 0.1 Bcf/d, indicates sustained export activity, particularly from South Louisiana and South Texas terminals. The export demand remains robust, with twenty-three LNG vessels departing U.S. ports and a carrying capacity of 87 Bcf. This export activity, the decreased domestic supply and fluctuating domestic demand may create upward pressure on natural gas prices. However, the overall market impact will depend on how these supply and demand factors evolve, especially considering seasonal changes and international market dynamics.
Weaker Dollar and Supply Disruptions Support Natural Gas Prices
As the market expects a potential rate cut by 50 basis points on Wednesday, this will likely result in a weaker US dollar. The weaker US dollar makes US commodities more attractive to foreign buyers. Consequently, this could further increase export demand for US natural gas, adding upward pressure on prices as international buyers take advantage of the favorable exchange rates. The U.S. monthly gross natural gas exports for the past decade are shown in the chart below. It is found that the U.S. received a 10% increase in natural gas exports compared to the previous year, which reached an unprecedented 20.9 Bcf/d.