Natural Gas Prices Have Bottomed But Don't Expect A Price Surge
The market is doing its job with the recent price decline. Lower 48 gas production has been weakening all month and taking aside maintenance/disruptions, it's obvious that current natural gas prices are insufficient to provide natural gas producers with an economic return.
As we wrote last week in our NGF, Chesapeake's announcement of production curtailment was a material turning event for the natural gas market. The market did not need to force prices to the point of forcing production shut-ins. And with real-time data showing Lower 48 gas production around ~102 Bcf/d, we think a bottom is here so long as production remains around this level into June.
But although we acknowledge that we are near the bottom, natural gas fundamentals are far from looking attractive.
Thanks to the extremely bearish weather we see on the horizon, natural gas storage withdrawals will come in 148 Bcf below the 5-year average and 52 Bcf below last year.
Our EOS currently points to 2.1 Tcf. The recent drop in Lower 48 gas production could skew this figure downward, but without a bullish weather event, storage is expected to be in a material surplus.
Fundamentally, bearish weather has skewed balances by as much as ~4 Bcf/d.
We estimate today's US gas market as balanced thanks to the recent drop in production. But with storage 450 Bcf higher than the 5-year average, more is needed to get prices moving meaningfully higher.