Cheap Gas Passed Its Cold Test in January. That Is Not the Same as a Comfortable 2024
The American natural gas market entered 2024 with two facts that look contradictory. Prices had just finished their weakest year since mid-2020, with Henry Hub averaging $2.57 per million British thermal units in 2023, about 62% below the 2022 average. Then, in the middle of January, the Lower 48 consumed more gas in a single day than ever before. On January 16, demand reached an estimated 141.5 billion cubic feet, beating the previous record set during the December 2022 storm.
Prices rose during the cold, but there was no repeat of the scarcity that turned Winter Storm Uri into a national story in 2021. The Energy Information Administration attributes the price collapse of 2023 mainly to supply. Dry gas production averaged a record of about 104 billion cubic feet per day in 2023, 4% above 2022, with growth led by the Permian. Total demand still grew about 3% over the year, but the growth came from exports and from power generation, not from heating.
Consumption in the Lower 48 averaged above 130 billion cubic feet per day from January 14 to 21, as arctic air moved from the Pacific Northwest into Texas and across the Northeast and mid-Atlantic. Freeze-offs, which happen when water and liquids in the raw gas stream freeze at the wellhead or in gathering lines, cut into production, as did other weather-related problems. The US entered winter with ample inventories, built up over a year of weak demand and strong production.
The EIA's January outlook expects Henry Hub to average under $3.00 in both 2024 and 2025, rising from 2023 but staying low by historical standards. Its reasoning is that production stays roughly flat but still edges to new records, with dry gas output rising by 1.5 billion cubic feet per day in 2024 to about 105 Bcf/d. There is another dynamic the headline price forecast does not fully capture. The good result in January 2024 should not be read as proof that the coordination problem is solved. January showed that the system is more resilient than it was in 2021.