Translation in English: Falling to production limits! U.S. natural gas futures p

The biggest beneficiary of the Russia-Ukraine conflict, natural gas, is no longer in the spotlight. Influenced by factors such as weather and inventory, U.S. natural gas futures prices once hit a new low since the 1990s, forcing major producers to announce production cuts and turn their attention to exports. However, with Qatar announcing last weekend the expansion of its liquefied natural gas (LNG) capacity, more intense market competition may signal that a new round of risks is brewing.

Inventory pressure suppresses gas prices

Last week, the natural gas futures for delivery in March on the New York Mercantile Exchange fell below $1.60 per million British thermal units (MMBtu) during trading, with the year-to-date decline expanding to over 20%. According to S&P Global Commodity Insights, this set a record low since 1995.

Data from the Midwest Regional Climate Center shows that major heating markets, including Minneapolis, Cleveland, Pittsburgh, and Fargo, North Carolina, are experiencing the mildest winter on record since 1950. A Rystad Energy report indicated that since the fourth quarter of last year, the heating degree days (HDD), which reflect the degree of heating required, have been below normal levels.

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The U.S. Energy Information Administration (EIA) reported that as of February 16, natural gas storage in the United States was 22% higher than the five-year average level.

For U.S. consumers, the decline in fuel prices is undoubtedly good news. According to the Department of Labor, the cost of natural gas usage for Americans in January was about 18% lower than the same period last year. Now, energy has become an important driver of the decline in the U.S. Consumer Price Index (CPI).

Natural gas producers are facing operational pressures and have started to withdraw drilling plans, promoting more exports to alleviate the domestic oversupply situation. Chesapeake Energy stated last week that its exploration expenditure for 2024 would be 20% less than previously planned, and it would reduce production by one-fifth compared to last year. The company's CEO, Nick Dell'Osso, said, "The market is clearly oversupplied. We believe we should curb supply to better meet demand." Subsequently, its main competitors EQT and Comstock Resources also announced plans to reduce drilling.

Industry data shows that the daily production in the U.S. has dropped from over 10.6 billion cubic feet in December to about 10.4 billion cubic feet this month, but it is still 3.3% higher than in February of last year.

Analysts warn that unless prices are low enough to reduce production and attract power plants to switch to natural gas, there is a risk that domestic storage capacity will be filled later this year. Matt Palmer, Executive Director of S&P Global Commodity Insights, said that the second consecutive mild winter has resulted in coal piling up at power plants, which means that coal prices have already fallen, and natural gas must be cheaper than last year to convince power producers to switch raw materials.

Some "stunning" quotes have already appeared in the derivatives market. Charlie Macnamara, Head of Commodities at Bank of America, found that the recent trading prices for natural gas futures put options have dropped as low as 50 cents/MMBtu.Qatar Enters the Scene with Increased Production

As the United States contemplates overseas markets, Qatar has also spotted an opportunity. Last Sunday, Saad al-Kaabi, the CEO of QatarEnergy, announced an additional expansion of its liquefied natural gas (LNG) production, which will raise the annual total capacity to 142 million tons.

Following the outbreak of the Russia-Ukraine conflict, the U.S. and Qatar have helped to compensate for the loss of Moscow's natural gas supply. In the global market, Europe and Asia are the main buyers.

Al-Kaabi stated at a press conference, "We still believe that natural gas has a broad future, at least for the next 50 years, as long as we can do more technologically. We see that Europe will need natural gas for a long time. However, the growth in Asia will definitely exceed that of Europe, which is essentially driven by population growth."

Prior to this, QatarEnergy had already signed a series of supply agreements with European and Asian partners for the expansion project of its North Field, located in the north. Al-Kaabi revealed, "It is difficult to give a figure for the expansion cost now, but it will definitely reach tens of billions. We will start the preliminary engineering studies for the project and then announce the project plan at the appropriate time."

For major natural gas-producing countries, expanding production capacity is the result of a series of factors being weighed. While betting on further growth in market demand, it is also necessary to guard against the risk of energy transition making green energy cheaper, thereby suppressing the demand for traditional fossil fuels. Some analysts, including the International Energy Agency (IEA), have indicated that global natural gas demand could peak as early as 2030.

It should be noted that this increase in production may not be the last for this Gulf energy giant. Al-Kaabi said that they will continue to assess Qatar's natural gas reserves and further release production capacity when necessary. Considering the uncertainty of the global energy demand outlook, competition for incremental market share may intensify fluctuations in the global natural gas market, impacting the already low American market.