- Natural Gas in its eighth day of consecutive losses.
- Traders are sending Gas prices already 20% lower since the start of February.
- The US Dollar Index roared on the back of red-hot inflation, consolidating gains this Wednesday.
Natural Gas (XNG/USD) is eking out more losses with February being outright negative for the fossil fuel. The additional move this time comes with Shell issuing an outlook where Liquefied Natural Gas (LNG) demand will be substantially decreased by 2040, seeing the current pushes worldwide to abandon fossil fuels. The outlook supports the overall trend seen in both Oil and Gas with several administrations worldwide taking measures to further limit and phase out usage on all fronts.
The US Dollar (USD) is trying to consolidate its current position after it booked some substantial gains on the back of a red-hot US inflation report that pointed to sticky price pressures being present. Markets had to push back further their expectations of an initial rate cut by the US Federal Reserve (Fed) from June into July. This made equities nosedive, though those are recovering at the moment ahead of the US opening bell.
Natural Gas is trading at $1.68 per MMBtu at the time of writing.
Natural Gas market movers: Gas prices low enough for power production
- Shell said in its outlook that demand for LNG by 2040 will be lower than first anticipated.
- Some tightening in European gas prices is showing that traders are focussing on the restocking of European gas storage ahead of next winter.
- Europe will need to look for 5% more LNG supply in order to reach the same levels of gas storage seen in 2023 ahead of winter.
- The warm front is closing in as expected and would see temperatures rise to unseasonable levels with London projected to reach 13 degrees Celsius.
- Current price levels are making Gas cheap enough again to use for power production.
Natural Gas Technical Analysis: Gas below $2?
Natural Gas is unable to halt the current downturn which has been going on for eight straight days already. More downturn looks to be at hand with supply still very much flowing and demand remaining rather tepid. Add several more calls for the longer term outlook where LNG and other fossil fuels are being phased out, and a quick return to higher levels looks not to be in the cards anytime soon.
On the upside, Natural Gas is facing some pivotal technical levels to get back to. First, $1.99, which saw an accelerated decline. Next is the blue line at $2.13 with the triple bottoms from 2023. In case Natural Gas sees sudden demand pick up, possibly $2.40 could come into play.
Keep an eye on $1.80, which was a pivotal level back in July 2020 and should act as a cap now. Should US President Biden’s moratorium be lifted, together with the additional supply from Canada – which is exporting more to fill the gap from the US – $1.64 and $1.53 (low of 2020) are targets to look out for.
XNG/USD (Daily Chart)
Natural Gas FAQs
Supply and demand dynamics are a key factor influencing Natural Gas prices, and are themselves influenced by global economic growth, industrial activity, population growth, production levels, and inventories. The weather impacts Natural Gas prices because more Gas is used during cold winters and hot summers for heating and cooling. Competition from other energy sources impacts prices as consumers may switch to cheaper sources. Geopolitical events are factors as exemplified by the war in Ukraine. Government policies relating to extraction, transportation, and environmental issues also impact prices.
The main economic release influencing Natural Gas prices is the weekly inventory bulletin from the Energy Information Administration (EIA), a US government agency that produces US gas market data. The EIA Gas bulletin usually comes out on Thursday at 14:30 GMT, a day after the EIA publishes its weekly Oil bulletin. Economic data from large consumers of Natural Gas can impact supply and demand, the largest of which include China, Germany and Japan. Natural Gas is primarily priced and traded in US Dollars, thus economic releases impacting the US Dollar are also factors.
The US Dollar is the world’s reserve currency and most commodities, including Natural Gas are priced and traded on international markets in US Dollars. As such, the value of the US Dollar is a factor in the price of Natural Gas, because if the Dollar strengthens it means less Dollars are required to buy the same volume of Gas (the price falls), and vice versa if USD strengthens.
Discover the Surprising Drop in Natural Gas Prices – Perfect for Energy Production!
Natural gas has long been a preferred source of energy production due to its affordability, reliability, and relatively lower carbon emissions compared to other fossil fuels. It has been a widely used energy source for both residential and industrial purposes, powering everything from household stoves and heaters to large-scale manufacturing and electricity generation. However, in recent years, the natural gas market has experienced a significant drop in prices, making it a lucrative option for energy production.
The drop in natural gas prices has surprised many analysts and industry experts, who previously predicted a steady increase in prices due to the increasing demand for energy and the limited supply of natural gas. So, what has caused this sudden drop in natural gas prices, and why is it perfect for energy production? Let’s dive deeper and explore the reasons behind this surprising price drop and its impact on the energy sector.
Reasons for the Drop in Natural Gas Prices
1. Increase in Supply: One of the primary factors contributing to the drop in natural gas prices is the increase in supply. In the past decade, there has been a significant increase in the production of natural gas, particularly in the United States. Technological advancements in drilling techniques, such as hydraulic fracturing (commonly known as fracking), have made it possible to extract natural gas from previously inaccessible sources, resulting in a surplus supply in the market.
2. Mild Winters: Another factor that has contributed to the drop in natural gas prices is the mild winters experienced in recent years. Typically, natural gas demand increases during the colder months due to its use in heating systems. However, with mild winters, the demand for natural gas has been lower, leading to a surplus of supply and consequently, a drop in prices.
3. Oversupply from Other Markets: Global natural gas markets are interconnected, and oversupply from other countries has also contributed to the drop in natural gas prices. For instance, countries like Australia and Qatar have increased their production of liquefied natural gas (LNG) and flooded the market with cheap natural gas. This has created a ripple effect, driving down prices in other regions.
Why is it Perfect for Energy Production?
The drop in natural gas prices has made it a perfect option for energy production for various reasons. Let’s take a look at some of the benefits:
1. Affordability: As mentioned earlier, natural gas is more affordable compared to other fossil fuels, such as coal and oil. The drop in natural gas prices has made it even more cost-effective for energy production, making it an attractive option for both businesses and consumers.
2. Clean Burning: Natural gas has lower carbon emissions compared to other fossil fuels, making it a cleaner option for energy production. With growing concerns about climate change, many countries are moving towards cleaner energy sources, and natural gas is a viable option in this regard.
3. Easily Accessible: The increase in supply and advancements in drilling techniques have made natural gas more easily accessible, making it a convenient energy source for many countries. This also means a more reliable and consistent supply, ensuring uninterrupted energy production.
4. Versatility: Natural gas can be used for various purposes, including electricity generation, heating, and transportation. This versatility makes it a valuable option for energy production, allowing for greater flexibility and adaptability to changing energy needs.
Practical Tips for Utilizing Cheap Natural Gas for Energy Production
1. Upgrade to Natural Gas Appliances: For residential and commercial properties, upgrading to natural gas-powered appliances can significantly reduce energy costs. This includes stoves, water heaters, and furnaces.
2. Switch to Natural Gas Vehicles: Many automakers are now offering vehicles that run on natural gas, providing a more affordable and environmentally friendly option for transportation.
3. Utilize Combined Heat and Power (CHP) Systems: CHP systems generate both electricity and heat simultaneously, resulting in energy efficiency and cost savings. With the low price of natural gas, implementing this system can further reduce energy costs for businesses.
Real-World Examples
One notable example of the impact of natural gas prices on energy production is the United States. The country has experienced a significant increase in natural gas production, resulting in a drop in prices. As a result, the U.S. has seen a shift towards natural gas-powered electricity generation, with an estimated 38% of the country’s electricity coming from natural gas in 2019.
Additionally, in Europe, cheap natural gas from the U.S. and other regions has led to a decrease in prices and more competitive market dynamics, benefitting consumers and businesses alike.
Conclusion
The surprising drop in natural gas prices has presented numerous opportunities for the energy sector. With its affordability, cleanliness, and versatility, natural gas is a viable option for both residential and industrial energy production. As the world continues to shift towards cleaner and more sustainable energy sources, natural gas is likely to play a crucial role in meeting energy demands. So, take advantage of the drop in prices and explore the various ways you can utilize natural gas for energy production in your home or business.
