U.S. natural gas prices have slumped again to some of the lowest levels in decades, after adjusting for inflation, amid slow progress absorbing the huge surplus inherited from a very mild winter in 2023/24.
After bouncing a little in May and June, front-month futures prices slipped to an average of just $2.25 per million British thermal units in July. In real terms, prices have only ever been lower between February and April this year and during the crisis caused by the first wave of the coronavirus pandemic in 2020.
Ultra-cheap prices have encouraged record gas-fired generation but have so far made only a small dent in the enormous stocks inherited from last winter. Working inventories were the second highest on record for the time of year in the middle of July and 17% above the prior ten-year seasonal average.
Cheap fuel has incentivised some of the least efficient gas-fired generators to run their units for more hours largely at the expense of coal-fired plants. Single-cycle gas turbines and steam generators, which normally run only as peaking plants, ran at the highest level on record for the time of year in April.
Gas-fired generation hit daily records last month during a heatwave across much of the Lower 48 states and with solar generation in California and other western states hit by wildfires. But it has not been enough to wipe out the glut.
Extraordinarily low prices are sending the strongest possible signal to producers on the need to cut drilling and output even further after an initial round of cuts announced in February.
Prices will remain lower for longer until the inventories start to converge with the long-term seasonal average, most likely by the end of winter 2024/25.