Natural-gas prices have fallen more than 40% since hitting shale-era highs in late August, reducing the risk of budget-busting heating bills this winter for millions of Americans and potentially easing a major cost pressure for manufacturers.
The decline is due to warm autumn weather, record domestic production and gas-storage facilities that have filled up fast since the end of air-conditioning season. Now, one of the big drivers of inflation costs roughly the same as it did a year ago.
Analysts warn that unusually cold weather could send prices soaring anew this winter, especially in the Northeast where maxed out pipelines have effectively capped output from Appalachia's prolific producers.
Yet many are forecasting that prices will be lower on average in 2023 than they were this year. They expect rising supply from increasingly efficient North American drillers along with slower-growing demand from an economy throttled back by central bankers trying to slow inflation with higher borrowing costs .
Natural-gas futures for December delivery ended Friday at $5.684 per million British thermal units, just 4.75% higher than a year ago. Early last week, futures slipped below $5 for the first time since March, when energy markets were jolted by Russia's invasion of Ukraine.
Permian Basin producers in recent days swamped the Waha trading hub in West Texas, pushing prices into negative territory. In some cash trades, sellers paid buyers more than $1 per million British thermal units to take away gas that was fetching more than $8 at the start of September, according to S&P Global Commodity Insights.
Analysts say futures prices are likely to rise a bit once furnaces fire up and a big liquefied-natural-gas export terminal in Texas resumes operations following a fire this summer . But they expect prices to decline next year.
Goldman Sachs analysts forecast that benchmark U.S. prices would average $5 per million British thermal units in 2023. BofA Securities anticipates $4.50. Through Friday, natural-gas futures this year have averaged about $6.60 per million British thermal units, straining not just household budgets but also the gas-consuming makers of materials ranging from steel and cement to plastic and fertilizer .
Investors are betting on cheaper gas, too. Hedge funds and other speculators in recent weeks have built up their biggest collective wager that prices will fall since the panic selloff during the Covid lockdown in early 2020, Commodity Futures Trading Commission data show.
Rising natural-gas prices have been a safe bet since the early days of the pandemic. Some of the hottest weather on record stretched supplies at home and abroad, while the closure of coal-fired power plants left electricity producers without an alternative to natural gas. After Ukraine was invaded, European utilities and manufacturers bid up boatloads of shale gas to replace Russian exports .
U.S. natural-gas inventories ended the past heating season drawn down to nearly 18% below normal levels. Another steamy summer, strong exports and restraint among North American drillers focused on shoveling cash to their shareholders kept domestic storage facilities from filling up much. By August, stockpiles were still nearly 13% below normal and prices pushed above $10 for the first time since 2008, when the shale-drilling boom was just getting started .
Mild weather in September meant a lot less gas burned to power air conditioners. Meanwhile, U.S. production rose to a record of more than 100 billion cubic feet a day and the prolonged outage at Freeport LNG's Texas export terminal made available a lot of gas that otherwise would have been sold overseas.
Traders began pumping more gas into storage tanks and caverns, socking it away for winter when demand is greatest.
Between Sept. 9 and Oct. 14, 571 billion cubic feet of gas were added to stockpiles, the biggest build ever over five weeks. The deficit to normal levels shrank by more than half. As of a week ago, the volume of gas in storage was within 5.5% of normal levels for this time of year, according to the Energy Information Administration.
Matthew Palmer, executive director of Global Gas at S&P Global Commodity Insights, said the firm expects U.S. inventories to fill even more and begin winter in line with recent years, at around 3.6 trillion cubic feet.
"That should be ample for most weather scenarios," he said. A really cold winter, however, like the frigid season of 2013-14, which sucked nearly 3 trillion cubic feet from storage, could push prices north of $10, he said.