Natural Gas

Prices:

The front-month natural gas futures contract for delivery at the Henry Hub settled at $3.17/million British thermal units (MMBtu) on October 4, an increase of 34 cents/MMBtu from September 4 (Figure 9). The Henry Hub natural gas spot price averaged $2.99/MMBtu in September, 3 cents/MMBtu higher than in August. On September 24, natural gas futures prices rose to more than $3/MMBtu for the first time since June 2018. Temperatures were higher than normal across much of the Lower 48 states, which contributed to high natural gas demand for power generation and limited significant inventory level gains this month. Working natural gas in underground storage has remained below the five-year (2013–17) average for most of the year. Inventories on September 28 totaled 2,866 billion cubic feet (Bcf), which is 17% less than the five-year average and 18% less than last year at this time.

Prices for natural gas futures contracts for October delivery generally trade at a lower price than contracts for January delivery, when natural gas demand is expected to be much greater. This year, however, the discount of the October contract to the January contract was at its lowest in the past five years. High use of natural gas for electric power generation through the summer months did not allow for sufficiently high injections to compensate for the low inventory level on April 1, the traditional start of the injection season. From June through September, natural gas used for power generation and for LNG exports reached record high levels. Natural gas production also rose to record levels, but the high demand prevented inventory levels from rising sufficiently to account for the initial deficit relative to the five-year average, which reached 607 Bcf as of September 28. The tighter natural gas market this summer contributed to a narrower spread between the October and January natural gas futures prices, which averaged 16 cents/MMBtu during the month of September compared with a range of a 20 cent to 40 cent/MMBtu discount over the past five years (Figure 10). In addition, higher natural gas production reduces the need for inventory to meet winter demand, which further contributes to the smaller price spread.

Total U.S. dry natural gas production reached an estimated 85.1 billion cubic feet per day (Bcf/d) in September, 9.3 Bcf/d higher than year-ago levels and a record high if confirmed in monthly data. Compared with historical levels, front-month natural gas futures prices during this period of production growth have remained steady and not experienced a decline with increased production, likely because of lower-than-average inventory levels (Figure 11).