U.S. gas prices slump to maximise power burn: Kemp - Reuters News<br>
<br>10-Feb-2023 15:41:39<br>
<br>LONDON, February 10 (Reuters) - U.S. gas prices remain stuck at some of the lowest levels for 30 years (after adjusting for inflation) in a signal to dial back new well drilling and maximise combustion by power producers.<br>
<br>Front-month futures closed at $2.45 per million British thermal units on February 9, in only the second percentile for all months since 1990, after allowing for the increase in core consumer prices.<br>
<br>Working inventories in underground storage were +17 billion cubic feet (+1% or +0.05 standard deviations) above the prior ten-year average on February 3.<br>
<br>But that was a massive turn around from a deficit of -427 billion cubic feet (-13% or -1.52 standard deviations) as recently as September 9.<br>
<br>Mild weather has played a relatively small role in erasing the earlier deficit and transforming it into a large incipient surplus.<br>
<br>The number of heating degree days across the Lower 48 states so far this winter has been only 5% below the long-term average.<br>
<br>More important has been loss of exports following the explosion at Freeport LNG’s terminal and reduced consumption stemming from high prices through much of 2022.<br>
<br>Chartbook: U.S. gas prices and inventories<br>
<br>Freeport’s eventual reopening should provide an outlet for some excess inventory, but with stocks in Europe also very full, exporters will have to compete for price-sensitive customers in Asia.<br>
<br>Slumping futures prices will discourage drilling and incentivise electricity generators to run their gas-fired units for more hours at the expense of coal.<br>
<br>The number of rigs drilling for gas has been essentially unchanged since the start of September - after increasing by more than 50 (+50%) in the first eight months of 2022.<br>
<br>Discounted futures prices will also boost combustion from the power sector, helping limit the accumulation of inventories this summer.<br>
<br>The summer-winter calendar spread between July 2023 and January 2024 has slumped into a contango of more than $1.10 per million British thermal units from a backwardation of more than 50 cents in August 2022.<br>
<br>Gas prices are now trading below the cost of coal, once the superior efficiency of gas-fired units is taken into account, which will encourage maximum gas burn this summer.<br>
<br>Related columns:<br>
- Europe’s gas supply stabilises after colder weather (Reuters, February 3, 2023)<br>
- U.S. gas prices slump on production surplus (Reuters, January 12, 2023)<br>
<br>(Editing by Mark Potter)<br>
IF YOU know anyone else who might like to receive best in energy and my research notes, they can add their emails to the circulation list using this link: [http://eepurl.com/dxTcl1<br>
<br> <br>John](http://eepurl.com/dxTcl1John) Kemp<br>
Senior Market Analyst<br>
Twitter: @JKempEnergy<br>
Phone: +44 7789 483 325<br>
<br>5 Canada Square<br>
Canary Wharf<br>
LONDON<br>
E14 5AQ<br>
UNITED KINGDOM<br>
<br> <br>Want to change how you receive these emails?<br>
You can update your preferences or unsubscribe from this list
