US Gas Prices Bounce As Firm Plans Output Reduction

US natural gas prices spiked after Chesapeake announced that it would reduce its US output. They rose 13.1% yesterday to $1.774 but are still down 15% on the month. Ample flows and soft demand due to a mild winter have put pressure on gas prices globally.

• Chesapeake will delay activating wells due to current weak demand and this should result in a 20% reduction in output compared to last year. It said that it has “the flexibility to hold off on delivering that gas to the market until such time that there is higher demand”. Given excess supply in the US and depressed prices, other firms could follow. EIA information shows that inventories are 15.9% above the 5-year average.
• European LNG fell 0.9% on Wednesday to be down over 20% in February to date as mild weather and weak industrial output weigh on demand. The preliminary euro area manufacturing PMI is out later today and is expected to show output continuing to contract but at a slower rate.
• European demand may now be structurally lower as households reduced energy use following the surge in power costs following Russia’s invasion of Ukraine. Gas usage has fallen 20% since the war began, according to the Institute for Energy Economics and Financial Analysis.
• Asian prices continued to trend lower on robust inventories and weak demand and are now around 17% lower this month.