The natural gas markets have further fallen to levels not seen since the start of the invasion of Ukraine. Coming out of relatively mild winters in both Europe and the continental US, demand has been weak, and futures have reflected the weakness in demand. While NOAA (National Oceanic and Atmospheric Administration) has published reports that parts of the US, specifically the northeast, will see hotter than normal temperatures over summer, the heatwaves have not arrived yet. Storage injections over the late spring and early summer have been strong but are beginning to come in lower than analysts expectations.
US storage levels as of week ending June 2, 2023, are at 2,550 BCF which is 28.3% above this time last year, and 16.1% above the 5-year average. Storage levels are still very healthy for the European marketplace due to the mild temperatures throughout late winter and spring. There is still strong LNG export demand across the European and Asian markets, but analysts have been warning that if summer temperatures do not heat up, we may see a weakening in LNG demand come mid-summer.
The Dutch TTF pricing in Europe for LNG recently took a sizeable dip, and that has made its impact on markets that price off the Dutch TTF such as AGT basis in New England. While this lower demand has brought the natural gas futures down to levels not seen since January of 2022, the exploration and production sector has begun to drop rig counts. Baker Hughes is showing a drop in domestic rig counts by 38 compared to this same time last year. Expect to see further drops in rigs while prompt month natural gas hovers between $2.30 and $2.70 as producers try to continue to satisfy contracts and try to reduce production. Without power burn demand, we should see this trend continue.