Fundamentally, The Natural Gas Market Is Moving In The Right Direction
Low prices cure low prices. In March following Chesapeake's announcement that it will curtail natural gas production due to low prices, EQT, the largest Northeast gas producer, also announced that March volumes will be curtailed. But we did not expect Lower 48 gas production to remain below ~100 Bcf/d into May.
For those of you watching signs for the natural gas market to turn, this is by far the most supportive variable. The fact that there's been very little rebound in production despite the steep contango we see in the market is encouraging and could suggest producer discipline into the summer.
Now granted, even with the stellar discipline we are seeing, fundamentally, we are only seeing a deficit of -1.87 Bcf/d.
This is entirely driven by the weak seasonal demand we usually see during the shoulder season months.
In addition, LNG gas exports have remained weak relative to 2023, while power burn has been stellar. Total gas demand is lower y-o-y.
But because of the decrease in total gas supplies, the US gas market is back into a deficit.
For our storage balance going forward, we are seeing smaller injections ahead. Relative to the 5-year average, we have -59 Bcf versus the 5-year average. This, however, does not change the fact that the US natural gas storage situation is very bloated.
While this is a step in the right direction, the market will have to keep forcing discipline out of natural gas producers by keeping prices low. Clearly, the current curve is doing exactly that and we think the price upside is still capped going forward.