Natural gas prices are down 50% in less than a month as we experience an abnormally warm winter. Some experts in the US fear that prices will fall further.
Why is this important?
Natural gas prices soared in 2022 as Europe scrambled to top up its reserves before winter amid war between Russia and Ukraine. But as consumers consume less gas this season, demand is down while supply is up, creating a powerful catalyst for driving prices down.Prices go down, concern goes up
News: Bloomberg, questioned the CEO of Chesapeake Energy (third independent gas producer in the United States, ed), Nick Dell’Osso. He wants to avoid a repeat of the 2014 shale oil crisis by limiting supply growth. “We think the industry should recognize this and it could reduce growth in the near term,” Dell’Osso said.
- The price of gas is currently around 65 euros per megawatt hour in Europe, according to the TTF index. This is a drop of more than 50 compared to 135 euros in December. We are also a long way from the extravagant peaks of August, when MWh reached 350 euros, the result of immense speculation. Prices are still 5 times higher than the average of the last ten years.
- But in the US it’s different music. The 68% drop since August worries specialists: too much supply could bring prices down.
- To avoid another gas price drop, Chesapeake Energy’s CEO is urging his industry to cut growth and cut supply to help balance supply and demand. He said gas prices send a “very clear signal” to industry that production needs to decrease. “Growth in gas supply is unnecessary in the short term. We believe the industry should recognize this and it could reduce growth in the near term,” Dell’Osso said.
The shale oil crisis
Flashback: After four relatively stable years in which the price of a barrel of oil hovered around $100, the price of a barrel of oil began to fall more than 50% in June 2014, explains the International Monetary Fund (IMF).
- The global oil market has been blindsided by a long-standing trend of supplying more than expected, mainly from unconventional production sources, including shale oil, to the United States.
- Thanks to the increase in the price of oil after 2009 and exceptionally favorable financing terms, the extraction of oil from solid rock formations (shale) has become very profitable in the United States. This profitability has caused oil production to skyrocket.
- While the supply forecast predicted an increase, the demand forecast predicted a decrease. Blame it on global growth, the source of multiple disappointments since 2011.
- If changes in both supply and demand have contributed to lowering the value of oil, the empirical calculations of the IMF indicate that it is the evolution of supply that has largely explained the decline in prices. There was therefore a drop of 77% in 113 days.