We sound like a broken clock by now, but the reality of the natural gas market is quite simple to understand: production needs to go higher for prices to stop going up.
The reality is that Lower 48 production can’t sustain ~95+ Bcf/d today, and as a result, natural gas prices will keep trending upwards with its occasional widowmaker-like volatility.
As you can see from the production chart above, Lower 48 gas production did reach nearly ~96 Bcf/d earlier this month but has failed so far to remain above this. For readers that follow us closely, you know that the production level needed to push the market into a surplus is 98+ Bcf/d. We are still ~3 Bcf/d away from this.
Another key contributor to escalating natural gas prices is the fact that demand is very strong. In particular, power burn demand is at the highest level for this time of the year. This is another indication that by this summer, we should see an all-time high in power burn demand. Total gas demand, as a result, is sitting at a record high for this time of the year thanks to structurally higher gas exports and strong power burn demand.
This trend will continue for the rest of the year. Total gas demand is expected to grow by ~4 Bcf/d this year, so any disappointment in supply will just result in natural gas prices going higher.
For those of you invested in natural gas producers, remain invested. The road ahead may be turbulent due to the global economic slowdown we are seeing combined with a Fed that’s hiking interest rates. But the fundamentals of the natural gas market are strong resulting in prices remaining elevated. Natural gas producers should continue to generate heaps of cash, and shareholders will be rewarded.
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