Natural Gas Prices in the United States

There are a few reasons why American natural gas was more expensive last year. One reason is that production levels were down due to a warmer than usual winter. This meant that there was less natural gas available, and prices rose as a result. Another reason is that demand for natural gas was up, due to increased use in power generation. This led to even higher prices.
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It's easy to forget that commodities are largely homebound, produced and consumed domestically. However, warm weather and replenished inventories are now shifting the focus back to home dynamics. With prices in the US and Europe moving in tandem, it's important to keep an eye on domestic developments.
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Since Christmas, benchmark Henry Hub futures prices have dropped by 23%, settling at $3.91 per million British thermal units. This is 40% below the 2022 average and 60% below the peak seen last summer. The warm weather we're experiencing—both in North America and Europe—is a major contributing factor. The extreme Arctic chill in late December was harsh but didn't last long, and the U.S. is currently experiencing the warmest January in 15 years or more, according to Eli Rubin, senior energy analyst at EBW Analytics.
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Natural gas prices last year were driven up by fears of a supply shortage after Russia sharply reduced its exports to Europe. Christopher Louney, commodity analyst at RBC Capital Markets, estimates that this so-called geopolitical premium added $2 to $3 per MMBtu to U.S. prices at various points last year.
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In August, European benchmark prices for natural gas reached a high of $100 per MMBtu. This caused a sharp increase in focus on the price of natural gas in the United States, which peaked at nearly $10 per MMBtu. This was due to the fact that domestic natural gas storage was 12-13% below the five-year average.
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Storage is improving on both sides of the Atlantic. In the United States, there was nearly 2.9 trillion cubic feet of natural gas in storage as of December 30, well within the trailing five-year range and just 6.7% below the five-year average. In the European Union, natural gas storage is at roughly 83% of capacity, a significant improvement compared with the 51% level a year earlier, according to industry body Gas Infrastructure Europe.
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The United States is one of the world's largest exporters of liquefied natural gas (LNG), but most of what it produces is consumed domestically. In October 2022, U.S. natural gas exports totaled 553.7 billion cubic feet, or about 16% of total production. Of that, LNG exports—which are shipped rather than piped—accounted for 9% of total production.
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Natural gas prices in 2023 are expected to be more stable than in previous years, due to factors such as local storage capacity and fixed export capacity. However, prices could still fluctuate in Europe due to factors such as inventory rebuilding and Russian gas imports.
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No new U.S. export LNG terminals are scheduled to start operating until 2024. However, Freeport LNG, a large, existing facility that shut down in June due to a fire, is now expected to resume operating in the second half of January. This will add about 60 billion cubic feet per month of total export capacity.
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The outlook for natural gas looks more bullish in the long term. The U.S. is expected to add around 40% more LNG export capacity between 2024 and 2026. Meanwhile, the EIA expects that around 27% of operating coal-fired power plants in the U.S. will retire between 2022 and 2029. This could leave limited room for the U.S. to switch to coal for power when natural-gas prices spike.
At the moment, the weather forecast is a more accurate predictor of where natural gas prices in the U.S. are headed than geopolitics.