EIA: Henry Hub dips to record lows

The Henry Hub average daily natural gas spot price has hit its lowest level since December 1998.

Citing Natural Gas Intelligence data, U.S. Energy Information Administration notes that the Henry Hub reached $1.38 per million British thermal units (MMBtu) on June 16, 2020, the lowest daily Henry Hub price without adjusting for inflation and in nominal dollars since December 1998.

After starting 2020 relatively low, the price at Henry Hub so far this summer has continued to trend low because of high natural gas storage levels and declines in natural gas demand, specifically in exports of liquefied natural gas (LNG) feedgas and in the industrial sector.

Following a mild winter, natural gas inventories ended the heating season on April 30 at 21 per cent (395 billion cubic feet (Bcf)) higher than the five-year average and 50 per cent (772 Bcf) higher than last year’s end-of-season levels. Since then, those differences have continued to remain wide as a result of falling demand, which has increased net natural gas injections into storage.

As of June 12, natural gas storage levels were 17 per cent (419 Bcf) higher than the five-year average and 33 per cent (722 Bcf) higher than last year.

High storage levels indicate high natural gas production relative to consumer demand. The June Short-Term Energy Outlook (STEO) forecasts record natural gas in storage of nearly 4.1 trillion cubic feet by the end of October 2020.

Low feedgas volumes delivered to LNG export terminals in recent weeks have also put downward pressure on natural gas prices. Natural gas deliveries to LNG terminals have averaged 4.0 billion cubic feet per day (Bcf/d) so far in June, which is 1.4 Bcf/d lower than feedgas volumes last year and more than 5.0 Bcf/d lower than the record-high feedgas volumes estimated in late March.

In addition, less business and manufacturing activity stemming from the policies put in place to mitigate the spread of the 2019 novel coronavirus disease (COVID-19) have also led to weaker natural gas demand from industrial consumers.

Estimates from S&P Global Platts suggest that average industrial natural gas consumption in June 2020 has declined about 2.1 Bcf/d, or 9.6 per cent, compared to June 2019.

Low natural gas prices so far this summer have resulted in increased natural gas consumption by electric power plants (power burn) because natural gas has become more competitive for electricity generation compared to competing fuel sources, such as coal. The average daily power burn is up about 6 per cent in June compared to last year. This increase occurred despite essentially flat demand growth for electricity so far this June.

Another effect of historically low natural gas prices is declining natural gas production. According to data from IHS Markit, dry production totaled about 90 Bcf/d in June, down nearly 3.7 Bcf/d from March 2020, EIA notes.

The recent declines in demand have outpaced the declines in production, putting downward pressure on Henry Hub prices. However, further declines in natural gas production are expected as a result of lags between natural gas price changes and adjustments to production levels.

The June STEO forecasts dry production to continue declining steadily, reaching a low of 84.2 Bcf/d in May 2021. Declines in natural gas production will put upward pressure on the Henry Hub price in the coming months. The June STEO expects higher natural gas prices by the end of 2020, forecasting Henry Hub to average $2.95/MMBtu in December.