The United States obtains the vast majority of gas from shale
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Specifics of the American market
The United States is essentially self-sufficient in natural gas. There are gas pipelines to Canada and Mexico, and there is mutual exchange due to the size of the entire continent and a less extensive network of connections than in the case of Europe.
The United States obtains the vast majority of gas from shale, therefore, in the context of long-term prospects, the number of drilling rigs and the number of fracturing crews are being analyzed. However, gas deposits are much larger than in the case of oil, so the number of towers does not change too dynamically.
The largest consumers of natural gas in the US are households and power plants. Above
1/3 of electricity in the United States is produced from gas, so when gas consumption increases dramatically, the price of the raw material can react. This is the case, for example, during summer periods when the use of air conditioning reaches peak levels.
Due to the shale revolution, the United States has become an important player in the LNG market. The vast majority of gas was sent to Asia, but the war in Ukraine changed this situation and Europe became more important. This is why the correlation between European and US gas prices has increased.
Seasonality and weather
Gas is also the most important source of home heating, which is why its highest consumption during the year takes place in the winter. This is when gas futures prices are at their highest. On the other hand, the increased use of air-conditioning in the summer may lead to greater price anomalies on the market. How do prices on the natural gas market usually move?
- The first phase of growth begins in early or late spring, due to the appearance of weather forecasts for the summer season, and usually ends at the beginning or during the summer
- The second wave of increases begins at the end of summer or the beginning of autumn and usually lasts until the turn of October and November, i.e. at the start of the heating season
What are the conclusions? Building expectations is crucial for gas prices, which is why weather forecasts play the biggest role in creating market volatility. On the other hand, later execution associated with a change in stocks causes a trend to be maintained or a correction in case of excessive expectations.
We can illustrate the seasonality of gas prices on the xStation 5 platform with two indicators - the average price behavior ( seasonal trends ) and a histogram of changes in a given time range ( histogram seasonals ). The greatest seasonality in the case of gas prices can be seen in the autumn period and the related building of expectations before the heating season. Source: xStation 5 Please note that information and research based on historical data or results do not guarantee future profits.
Stocks
Gas stocks are by far the most important factor in gas prices. Change in stocks is the difference between production and consumption, which in turn is divided into domestic consumption and exports. Stocks must be built up before the winter period, as gas consumption in these months is greater than production capacity.
Demand for gas is basically shaped mainly by the weather and does not depend much on the price. Price trends have a greater impact on production, as higher gas prices determine the willingness to invest more. Changing stocks gives us an idea of the joint behavior of supply and demand. How do we analyze inventory?
- Stock change and analysis if it is seasonal
- Inventory seasonality and analysis against previous years and long-term average
- Comparative stocks, ie the behavior of current stocks relative to the average and compared to prices
Weekly change of gas stocks
Max Average (2017-2021) Min 2022
The seasonality of inventory changes alone is key to analyzing short-term price volatility. A significant deviation from the average shows a change in fundamental factors. In addition, we see that the largest increase in inventory has
place in spring and autumn. Source: EIA, XTB
Gas in underground storage (billion cubic feet)
Max Average 2021 2022
Inventory trend analysis against historical data is crucial in assessing price pressures. For 2022, we are seeing a strong departure from both the average and the previous year, which has driven prices to levels not seen since 2008, when the US was still one of the world's largest gas importers. Source: EIA, XTB
Comparative stocks and relation to gas price
Gas stocks - five-year average Natural gas (USD/ MMBTu )
As you can see, there is quite a significant relationship between the direction of changes in the level of inventories and the price of natural gas. If current inventories are lower than the five-year average (inverted left axis), we should see upward pressure on commodity prices. However, if inventories are rising relative to the five-year average, there is significant oversupply in the market and downward pressure on the price. The situation at the end of 2022 does not look extreme, but geopolitical issues keep the price close to 15-year highs. Source: Bloomberg, XTB Please note that information and research based on historical data or results do not guarantee future profits.
