The low natural gas prices in 2024 can be attributed to a combination of factors based on the information available up to September 25, 2024:
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High Inventory Levels: At the beginning of 2024, natural gas inventories in the U.S. were significantly above the five-year average for that time of year. This surplus in supply naturally puts downward pressure on prices.
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Production Levels: Despite forecasts of production increases, the actual increase in natural gas production might not have matched the initial expectations, leading to a situation where demand growth was slower than supply growth. This imbalance contributes to lower prices as the market adjusts.
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Demand Dynamics: There’s been a noted decrease in demand due to various factors. For instance, milder weather conditions can reduce the need for heating, thereby lowering natural gas consumption. Additionally, shifts towards renewable energy sources or energy efficiency improvements might be reducing overall demand for natural gas for electricity generation.
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Market Sentiment and Speculation: Sometimes, prices are influenced by what traders and market analysts expect will happen. If the market sentiment leans towards expecting lower demand or increased supply due to new production or geopolitical shifts (like increased LNG exports from regions other than traditional suppliers like Russia), this can lead to lower prices even before these changes fully materialize.
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Geopolitical Factors: The reduction in gas imports from Russia to Europe due to geopolitical tensions and the EU’s efforts to diversify its energy sources might have initially led to higher prices, but as alternative supplies ramped up (like from Azerbaijan or increased LNG imports), this could have contributed to a global oversupply, affecting prices worldwide.
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Economic Policies and Market Reforms: In some regions, economic policies aimed at reducing energy costs for consumers might indirectly lower natural gas prices. For example, price caps or subsidies in certain markets could influence global prices if these markets are significant.
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Technological Advances and Efficiency: Advances in drilling technologies like fracking have allowed for increased gas extraction in the U.S. and potentially other regions, leading to an oversupply when demand doesn’t match the increased production capacity.
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Competitive Energy Sources: The rise in renewable energy usage might be starting to impact natural gas demand, especially for electricity generation. As more solar, wind, or even nuclear power comes online, the need for natural gas as a backup or primary source could decrease, affecting its price.
These factors combined create a scenario where an oversupply relative to demand, coupled with market expectations and geopolitical strategies, results in lower natural gas prices. However, these reasons are based on trends and data snapshots; actual market dynamics can be more complex, involving rapid changes in supply lines, unforeseen demand shifts, or policy changes that might not be fully captured in real-time data or projections.
With the lack of investments in oil and gas, what do you see for the investment value for both? Are you a Bull or a Bear? As for me I am a Perma Bull in Oil, and I think natural gas will find a sweet spot soon. As we need more power plants and electricity demands are increasing and the economy is getting worse. Natural Gas is the only way forward in the short term for a lower impact on the environment.
Sources:
Gas prices have decreased for 7 straight weeks – 18 states report them under $3
Stock Market approaching 42,000 points
4.2% – August 2024 vs 10.2% August 2020
World’s best economy rebound following the global pandemic— Hope DealHER (@NuAsiaHarmeen) September 23, 2024
Decline in natural gas price drove decrease in U.S. oil producer revenue in early 2024
Natural gas prices fell 26% from Q1 2023 to the Q1 2024 and reached their lowest average monthly inflation-adjusted price since at least 1997 https://t.co/57LPjBK7cZ
— 1KermodeBear (@1KermodeBear) September 23, 2024
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