Shale drillers in the United States are reportedly struggling to fulfill the high demand for gas from domestic generators. Moreover, consumers in Europe and Asia are seeking alternative supplies following Russias invasion of Ukraine.
According to the U.S. Energy Information Administration, working inventories in underground storage reached 2,771 billion cubic feet, the second-lowest level this year since 2010. Since late January 2022, storage has consistently lagged the pre-pandemic five-year norm, and despite prices that are far higher than long-term averages, it shows no signs of narrowing.
Additionally, Inventories are now 398 billion cubic feet lower than the pre-pandemic average, compared to a deficit of 316 billion cubic feet at the beginning of the injection season on April 1. As a result of the economy's rebound from the COVID-19 pandemic and slightly above-average temperatures this summer, electricity generation is on course to set a record this year.
It is worth mentioning that given the retirement of coal-fired units and the drought that has reduced hydroelectric output in the western states, U.S. producers are burning record amounts of gas. Notably, the first five months of 2022 saw generator consumption rise to 4,372 billion cubic feet, the second highest on record after January through May of 2020.
Over the summer, gas burning by power generators has been even more robust, reaching a new daily record in July. While new LNG liquefaction terminals are being built to meet the skyrocketing demand from importers in Europe and Asia, exports are also growing at unprecedented rates.
Interestingly, front-month futures prices have increased to over USD 8 per million British thermal units due to persistent scarcity, which is more than double the seasonal average for 2011–2020 and the highest since 2008 after accounting for inflation.
Notably, the majority of the time since late May, prices have been trading in the 80th to 85th percentiles for all the months since 1990, indicating a lack of stocks and offering a compelling argument for increased output.