US natural gas prices plummeted to their lowest level since mid-April 2023 on Wednesday due to an oversupply, substantial reserves, and the approaching spring season.
The near-term contract for March delivery dropped to $1.956 per million British thermal units (BTU), the Anglo-Saxon reference on this market.
According to Eli Rubin of EBW Analytics Group, the decline in prices is down to a rise in American production, which has not slowed since autumn. Moreover, natural gas reserves are now about 5% higher than their average level over the past five years during this period, the US Energy Information Administration (EIA) stated.
Rubin also highlighted the notably mild winter, with just a single cold front in early January. This has seen the market already begin its transition to spring – a period traditionally marked by lower demand.
Another challenge is that for the first time since the US adopted large-scale liquefied natural gas (LNG) in 2016, no new LNG export terminals were opened in 2023. Furthermore, LNG infrastructure works have been delayed, including the major Golden Pass project – a $10 billion collaboration between ExxonMobil and QatarEnergy in Texas.
This has now been delayed to the first half of 2025. As Rubin explained, the delay means that there is an excess of supply but demand is not there. The new terminal was intended to facilitate LNG exports to other countries.
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As facilities await opening, gas is redirected to the US market, where demand is insufficient to absorb it, resulting in lower prices. The price drop is unrelated to the moratorium on new LNG terminal construction declared by Joe Biden’s government at the end of January. This put a halt to the construction of new LNG terminals in a move that he says signals the US' intention to reduce fossil fuel use around the world.
Rubin dismissed its immediate impact stating, “These are projects which weren’t meant to be operational for another four or five years. It has no impact on short-term fundamentals.”
