The U.S. is expected to expand LNG export capacity to 25 Bcf/d by 2028, which could cause volatility in natural gas prices, with different patterns in summer versus winter months. Is the market prepared for more pronounced seasonal swings?
The Henry Hub forward curve as of December 2023/January 2024 implies a tighter supply/demand balance in future years. The rise in forward prices is primarily caused by planned U.S. LNG export capacity changing the fundamentals of the forward prices. As the U.S. natural gas market becomes more reliant on LNG exports as a primary driver in demand, it’s possible that seasonal price volatility will increase. The summer and fall months could be more susceptible to price deterioration, whereas winter months or peak demand months could see an increase in price risk premiums.
Recently, the spread has changed, showing October 2024 through January 2025 changed since late 2021 from -$0.425 to -$1.118. The spread is wider than we have seen in the October through January period. What is causing the wider spreads? We believe that it is consistent with more anticipated export demand as the U.S. adds additional capacity, and that demand will follow similar seasonal swings.
Since natural gas swings have already occurred in the first few weeks of 2024 with colder seasonal weather, and since LNG is a seasonal fuel burned mostly in the northern hemisphere in winter, we expect seasonal price volatility to increase in the future.
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