Citigroup commodity analysts have recently stated that North American refiners continue to enjoy a significant advantage over their international counterparts due to the low domestic natural gas prices. The bank has revised its price projections for global natural gas prices, highlighting multi-month low targets for the U.S. Henry Hub benchmark.
Citi predicts that Henry Hub prices may decrease to as low as $1.80/MMBtu, while European TTF numbers are expected to drop to the range of $8/MMBtu. These lower targets are attributed to milder-than-normal weather conditions observed across North America, Europe, and Asia.
For the first quarter, Citi forecasts an average U.S. natural gas price of approximately $2.30/MMBtu, followed by an average of $2.10/MMBtu in the second and third quarters.
As of Tuesday afternoon, the NYMEX March Henry Hub futures contract recorded a decline of 7.7cts, reaching $2.01/MMBtu.
Citi also projects that European prices will average around $8.50/MMBtu in the current quarter, with expectations of a rise to $10/MMBtu sometime in the second quarter. Average prices in Asia are anticipated to be $1.50 to $2/MMBtu higher than those in Europe.
While the U.S. forecast accounts for a potential surge in demand during another hot summer as well as strong industrial growth and exports to Mexico, Citi suggests that robust U.S. production will limit any upward pressure on prices. Additionally, the bank believes that the Biden administration’s halt on LNG export terminal approvals will not have any impact over the next three to four years.
Citi highlights that in the decade prior to the Covid-19 pandemic, NYMEX natural gas futures experienced decreases in six out of ten years, even dipping in January and February. The $1.80/MMBtu target brings natural gas prices close to a level where production in certain plays, particularly the Haynesville shale, may become uneconomical.
