Declined Production Levels Create Upward Pressure on the USA Natural Gas Prices

The average prices for Natural Gas in the USA rose in August from July levels with the prices averaging $4.07 per million British thermal units (MMBtu) in August which is up from the July average of $3.84/MMBtu on the back of increasing demand for cooling systems due to hot weather conditions across the country. The prices are expected to remain high due to the domestic supply crunch caused by hurricane Ida which has taken almost 90% of US Gulf production offline. 

The prices will be facing additional upward pressure from the increased demand for exports of Liquified Natural Gas (LNG) amid tighter domestic supply. This has resulted in inventory levels dropping 7% lower than the previous five-year average for this time of the year. 

The Energy Information Administration expects production levels to rise by 1 billion cubic feet per day in the second half of 2021. The increased production in the second half is expected to be driven by price rise for Crude Oil and Natural Gas. 

Natural Gas is a fossil-based energy resource which is found beneath the Earth’s surface. Natural Gas contains many compounds. The largest component of natural gas is Methane. The global demand for LNG stood at around 350 million tonnes in 2020 and is expected to grow at a CAGR of more than 5% for the upcoming years. The major drivers for demand growth include the surge in investments in US shale oil and gas exploration and large conventional projects across Russia and the Middle East. 

As per ChemAnalyst, “the tight domestic supply which has put upward pressure on the Natural Gas prices and rising exports which have further strengthened the uptick in the price levels are expected to keep the prices high for the upcoming month as more than 90% of the Natural Gas Production remains offline which will take some time to normalize. Meanwhile, the high demand for LNG from the Asian markets is expected to persist.”