Record production of natural gas is snuffing out any price rally that might have occurred from the bout of cold weather this winter.
The gas market saw a jolt at the end of December and in early January due to extremely cold temperatures across much of the U.S. This winter was about 13 percent colder than last year, which pushed up residential and commercial gas demand by 3.5 billion cubic feet per day (Bcf/d), according to Barclays.
At the same time, demand continues to grind higher on a structural basis, with more LNG exports leaving U.S. shores and more utilities burning gas for electricity. That led to a sharp drawdown in gas inventories, pushing them 16 percent below the five-year average in the first quarter.
Nevertheless, the price impact was muted. In the past, sever cold snaps have led to sharp price spikes. While that happened in regional spot markets, the price increases were very short-term and nothing like the price increases during the 2014 Polar Vortex. After the cold subsided, Henry Hub spot prices fell back below $3/MMBtu.
Gas traders are so sanguine because the U.S. is producing more natural gas than ever. And 2018 is shaping up to be a record year for new gas output. A mild streak during February eased some pressure on inventories as well.
As a result, the U.S. will likely see “heavy” gas injections during the second quarter, according to Barclays. The bank expects gas inventories to rise at a pace that is 1 Bcf/d higher than last year.
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