Producers and others along the natural gas value chain are apprehensive about the substantial shift in trading momentum this year, but the sector’s price slump is playing an outsized role in drawing down inflation and easing recession worries.
The U.S. Department of Labor said Tuesday its Consumer Price Index (CPI) increased at a 3.1% rate in the 12-month period through November. That was down from 3.2% the prior month and 6.5% at the end of 2022. Inflation surged to a 40-year peak of 9.1% earlier last year.
Lower energy costs overall – and natural gas prices in particular – have driven the deceleration in inflation. The energy index declined 5.4% in the year through November, while the energy commodity index dropped 9.8%. The natural gas index declined 10.4%.
Over the past 12 months, gasoline prices were down 8.9%, according to the CPI, while fuel oil costs were down 24.8%.
The lower energy bills largely offset continued increases across most other consumer price categories, from food to clothing to housing.
Soaring natural gas and oil production in the Lower 48 – both reached record levels this year – have eclipsed domestic demand and dampened prices. Natural gas production reached an all-time high above 106 Bcf/d in November and again topped that threshold multiple times in early December, according to Wood Mackenzie estimates.
U.S. crude production hit a weekly record of 13.2 b/d during the fall and remains near that level in December, according to the Energy Information Administration (EIA). That is nearly 1.0 million b/d more than late 2022.
The January natural gas futures contract on Tuesday settled at $2.311/MMBtu, down 12.0 cents on the day. Futures prices are trading this week at roughly a quarter of the value of the highest points of 2022.
Physical gas markets are also under pressure as the heating season takes hold. For example, NGI’s December Bidweek National Avg. climbed 19.0 cents month/month to $3.325/MMBtu. But that was far below the year-earlier average of $8.395.
Steve Blair, a veteran gas broker and independent analyst, noted that winter weather has been slow to arrive this year, so traders are waiting for tangible evidence of chills early in 2024. Prices moving forward largely depend on “whether we get a mild, normal or harsh winter,” he told NGI.
Dramatic Shift
The moderation in fuel prices in 2023 marks a stark reversal.
The inflation spike last year was caused in part by soaring natural gas prices in the wake of Russia’s invasion of Ukraine. Western sanctions against the Kremlin to oppose the war – and Russia’s retaliation – resulted in a major cutback of Russian natural gas sent to Europe via pipeline.
This bolstered demand for U.S. exports of LNG and, following a bitter cold winter in 2021-2022 that necessitated a drawdown of American supplies, prices rallied. In the summer of 2022, U.S. natural gas futures approached $10.00/MMBtu – reaching 14-year highs – and more than doubled the price level prior to the February onset of the Ukraine conflict.
Oil prices also cruised higher, in part because of the war and in part due to pullbacks in output by OPEC and allied crude producers, including Russia. Brent crude prices topped $110/bbl in May 2022, up nearly 40% from the start of that year.
Brent prices this week, however, hovered close to $70.
This year’s stretches of benign domestic weather in concert with robust exports of U.S. liquefied natural gas to help Europe rebuild its gas supplies in storage intersected with the elevated U.S. production to bring down gas prices. Global recession concerns and the burst of American oil output have kept crude prices in check.
On the natural gas front, forecasts for seasonally mild weather through December and stout supplies in storage could weigh down prices through the end of the year. EIA most recently reported a 117 Bcf withdrawal from storage for the week ended Dec. 1. However, inventories remained about 7% above the year earlier level and the five-year average.
For upward natural gas price momentum, “the amount of gas in storage versus last year will need to decline, and the potential for this is very low through year-end based on weather forecasts,” Mobius Risk Group analysts said.
Still, producers of both natural gas and oil remain active – largely because of expectations for enduring global demand for fossil fuels through this decade. This includes anticipated increases in LNG demand from multiple new Gulf Coast export facilities that are slated to open over the next several years.
Against that backdrop, the Energy Workforce & Technology Council reported an increase of 1,286 jobs in the U.S. oilfield services sector during November.
Compared to the prior month, job availability across the sector increased by 0.2% last month. The market added jobs in 10 out of the 11 months so far in 2023. The gains pushed the sector’s job total to 652,398, bringing employment to within 54,130 of pre-pandemic levels.
“Make no mistake, the latest jobs report directly reflects the oil and gas industry's adaptability and determination,” said Energy Workforce President Molly Determan. “These latest figures are a testament to the industry's commitment to growth.”
