Additionally, there are expectations that average temperatures across major natural gas markets, including China, Japan, and Europe, will fall below long-term averages this year. This could lead to a synchronized increase in natural gas-fired heating demand, further pushing up prices.
At the same time, high storage levels in the United States continue to put pressure on prices. As the world’s top natural gas producer and consumer, the United States’ production currently exceeds its consumption by approximately 13 percent.
According to the Energy Information Administration (EIA) report, U.S. natural gas inventories are at their highest level since 2016, with working natural gas in storage currently 6 percent above the five-year average.
The commodity has maintained an overall negative outlook over the last couple of years, with prices fluctuating between $1.40 and $3.65 per MMBtu on the WTI futures platform. This was driven by a complex interplay of supply and demand dynamics that negatively impacted the fuel’s outlook. In March 2024, prices dropped to a four-year low due to lower demand and surplus supplies but later saw a moderate recovery. In the domestic MCX futures, prices hit a low of Rs 128.50 in March before recovering to Rs 297 in November.
A decline in demand, driven by lower heating needs from key consumers like the US and Eurozone, an industrial slowdown in Europe, and record-high production and exports from the US, negatively impacted the overall outlook for the fuel.Weather conditions can significantly impact the demand for natural gas. Last year, warmer-than-normal temperatures in Europe and America during peak seasons led to a decline in consumption. However, current forecasts of colder weather in the US and Europe are expected to increase heating demand and potentially support higher prices.European natural gas demand continues to decline due to energy efficiency measures, increased adoption of renewable energy, and reduced reliance on Russian gas. Current data indicates Europe’s annual natural gas demand is around 330 billion cubic meters (BCM). However, the International Energy Agency (IEA) projects global natural gas demand will increase at a stronger rate in 2024 than in the previous two years. The IEA estimates that demand has risen by more than 2.5 percent in 2024, with similar growth expected in the coming year.
Fast-growing Asian markets and a potential rebound in European industrial gas demand are expected to drive this growth. The EIA predicts limited new gas supplies in 2024 due to slow production growth, while ongoing geopolitical tensions may contribute to price volatility.
(Hareesh V is Head of Commodities at Geojit Financial Services)
