Henry Hub front-month prices have remained largely subdued since last winter, owing to resilient U.S. shale gas output and ample storage inventories weighing down prices, with price volatility diminishing in tandem across 2023. 

However, a January cold snap across North America saw a sharp increase in demand for heating, causing dramatic gyrations in the spot market and a notable rebound in front-month price volatility to levels last seen in April 2023.

Along with weather fluctuations, variability in U.S. natural gas balances can be induced via its interactions with the global LNG market. Historically, this has occurred during two regimes.

1. Unconstrained LNG exports: when global oversupply tests the variable-cost economics of U.S. LNG export facilities (e.g., September 2020), the U.S. domestic market is balancing alongside more volatile global gas markets.

2. Constrained LNG exports: unexpected facility outages (e.g., Freeport) can force volumes to remain in the U.S. market, quickly altering domestic balances. 

A convergence of global gas prices with U.S. prices is a possibility once again this decade due to the coming wave of new LNG supply, which would have significant implications on Henry Hub volatility (and correlations with global gas markets).

Greater price volatility raises the importance of both physical and financial optionality for effective risk management by market participants exposed to Henry Hub. This was evident in the record trading volumes of Henry Hub Natural Gas (LN) options throughout January.

timera-energy.com
+44 (0) 207 965 4541
info@timera-energy.com

The contents of this document is for informational purposes only, should not be considered as investment or trading advice, and is not an offer to sell or a solicitation to buy any futures contract, option, security, or derivative including foreign exchange.

© Timera Energy 2024 | Registered in England and Wales No 6728502

The opinions and statements contained in the commentary on this page do not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs. This content has been produced by Timera Energy. CME Group has not had any input into the content and neither CME Group nor its affiliates shall be responsible or liable for the same.

CME GROUP DOES NOT REPRESENT THAT ANY MATERIAL OR INFORMATION CONTAINED HEREIN IS APPROPRIATE FOR USE OR PERMITTED IN ANY JURISDICTION OR COUNTRY WHERE SUCH USE OR DISTRIBUTION WOULD BE CONTRARY TO ANY APPLICABLE LAW OR REGULATION.