In the first half of 2020, the average Henry Hub spot price plunged to record lows of around $1.81 per MMBtu. Since then, prices eases further with HH gas prices last seen trading at $1.76 per MMBtu.
Dire demand outlook
U.S. gas storage levels are already higher than average for this time of the year, as low gas prices globally have led to a decline in LNG exports. Demand for US LNG has fallen by half in the first half of 2020, from 9.8 billion cubic feet per day (Bcf/d) in late March to less than 4.0 Bcf/d in June. Industrial gas demand in the United States, meanwhile, is down by 0.6 Bcf/d, or 2.7%, compared with the first half of 2019.
Health experts are warning of the effects of a second wave of coronavirus infections in the autumn which may make it necessary to re-instate lockdowns with dismal effects on the economy and energy prices.
Prices set to stay low
The U.S. Energy Information Administration (EIA) expects natural gas prices to stay low in the coming months before eventually increasing by the end of 2020. In its July 2020 Short-Term Energy Outlook (STEO), EIA forecasts the Henry Hub natural gas spot price for the second half of this year will average $2.05 per MMBtu.
By the onset of autumn, EIA expects low prices to lead to further declines in natural gas production as a result of lags between natural gas price changes and adjustments to production levels. Analysts expect U.S. dry gas production will decrease by 3% to average 89.2 Bcf/d in 2020, down from 92.2 Bcf/d in 2019.
Gas-burn rises
The low US gas price has been driving a rise in gas-burn in the electric power sector, which is already 7% higher in the H1-2020 compared with last year. The EIA expects consumption in all other sectors to decline and that overall 2020 natural gas consumption will decline by 3 Bcf/d.
Prices at key trading hubs across the country have generally traded close to the Henry Hub basis, and they are largely driven by regional temperatures. Except for California, prices at all major trading hubs in population centers averaged less than $2 per MMBtu in the first half of 2020.
Prices at PG& Citygate in Northern California and SoCal Citygate in Southern California averaged $2.57 per MMBtu and $2.35 per MMBtu, respectively. The mild winter this year kept the gas price at the Algonquin Citigate in New England relatively low, hovering around $1.88 per MMBtu in the first half of the year.
Looking ahead, EIA analysts expect natural gas spot prices to rise by the fourth quarter of 2020 as production falls and the winter heating season begins.