Natural Gas

Prices: The front-month natural gas futures contract for delivery at the Henry Hub settled at $3.04 per million British thermal units (MMBtu) on June 3, 2021, which was up 7 cents/MMBtu from May 3, 2021 (Figure 9). The average price for front-month natural gas futures contracts in May was $2.96/MMBtu, the highest May average since 2017.

High levels of U.S. LNG exports continued in May and supported Henry Hub natural gas futures prices above $3.00/MMBtu. We estimate U.S. LNG exports of 10.0 billion cubic feet per day (Bcf/d) in May, the most on record for the month. Every month since November 2020 has been among the 10 highest months for U.S. LNG exports on record. Stable U.S. production during this period in combination with high exports reduced storage levels below their previous five-year average. Although natural gas stocks were 191 Bcf higher than the five-year (2016–20) average at the start of the year, they were 61 Bcf lower than the five-year average as of the week ending May 28. Front-month natural gas futures prices have increased as stocks have decreased, starting the year at $2.58/MMBtu and closing at $3.04/MMBtu on June 3.

Although U.S. natural gas futures prices have risen, futures price volatility has declined to low levels. Historical volatility measures the magnitude of daily changes in closing prices for a commodity during a given time in the past. Based on rolling front-month contracts, the 30-day historical volatility of U.S. natural gas futures prices was 27.9% on June 3, a significant decrease from 73.5% a year ago. (Figure 10). However, the May 2020 historical volatility was unusually high as a result of COVID-19-related disruptions, and historical volatility tends to be low around May because of less demand for natural gas as a fuel for heating or cooling. The previous five-year (2015–19) average historical volatility for the first trading day of June was 35.7%. This year, historical volatility has been even lower so far than the seasonal average. Prices have hovered within a somewhat narrow range around $3.00/MMBtu, likely because of stable U.S. production and relatively stable U.S. consumption as a result of slightly below-average cooling demand during May.

International natural gas prices: International LNG spot prices often reach yearly lows in May, but this year they have climbed to the high prices typically seen in winter months. The Japan-Korea Marker (JKM) price exceeded $10/MMBtu this May, compared with May 2019 and 2020 averages near $5/MMBtu and $2/MMBtu, respectively. The Title Transfer Facility (TTF) and National Balancing Point (NBP) prices in Europe have shown similar trends (Figure 11). In Asia, efforts to build stocks in anticipation of demand for summer electricity and to prepare for heating demand next winter has increased demand for LNG imports and supported high prices. Because LNG stocks in Asia have been lower than usual this year as a result of significant draws during the extremely cold winter, demand in Asia for LNG imports has been much greater than usual. In Europe, the coldest April in nearly a century and low inventories also supported higher global demand and higher prices for LNG. Because of this strong global demand for LNG, we forecast that U.S. LNG exports will continue to be high and average more than 9.0 Bcf/d during the remainder of 2021.