The US Could Go Into The 2023/24 Winter With St Orage At Its Highest Levels Since 2020| FXMAG.COM

The US natural gas market is more comfortable

The pace of inventory builds during the 2023 injection season will be much more modest compared to what we have seen this year, given the reductions in Russian sup ply. The ability of the EU to completely turn to other sources is just not possible. Therefore, Europe is likely to go into the 2023/24 winter with tight storage, which could leave the region vulnerable.

In order to get through the 2023/24 winter comfortably, we will have to see continued demand destruction once again. This will have to be either as a result of market forces or EU mandated demand cuts. While Europe should be able to scrape through the 2023/24 winter if current Russian gas flows continue, i t is much more challenging if remaining Russian gas flows come to a full stop.

Therefore, we believe that there is upside to European gas prices in 2023. However, much will depend on how much storage the EU manages to draw down this winter.

The US natural gas market is more comfortable

The US natural gas market this year has also seen significant strength, trading to multi year highs. Strong global LNG prices, stronger demand from the pow belower sector and average inventories have all proved bullish for Henry Hub. However, the outlook for US gas prices is more bearish. US dry gas production is expected to hit record levels next year, growing by a little more than 1.6bcf/d to average almos t 99.7bcf/day over 2023, whilst finishing 2023 with output in excess of 100bcf/day.

In addition, this year saw stronger demand from the power sector over the summer, which pushed overall gas demand higher this year. Expectations are that domestic demand will fall back towards more normal levels. Meanwhile, on the export side, while there is more LNG capacity set to start up over the course of the year, this is fairly limited. LNG exports are expected to average a little over 12.3bcf/day in 2023, up from an estimated 10.8bcf/day in 2022.

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As a result, over the course of 2023, we should see US natural gas inventories moving from below their fiveyear average to above it ahead of the next heating season. In fact, the US could go into the 2023/24 winter with st orage at its highest levels since 2020. Therefore, we expect Henry Hub to trade lower in 2023 relative to 2022.

The uncertainty around our gas price forecast is high given the geop olitical situation and the direction of the global economy. You can find our gas price scenarios here

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