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Is natural gas ready to rally soon?

The long-term decline in gas prices might come to a halt soon. At least charts say so.

This year’s 46% collapse in natural gas prices is echoing throughout the US shale industry, threatening to stall drilling and freeze deal-making, a move unimaginable six months ago when global demand was soaring.

US gas output is expected to decline amid a drop in prices

The analysts are cutting their forecasts for gas pricing, output, and profits for this year. According to experts, the decline has also cast a shadow on merger and acquisition activity.

Such moves were implausible six months ago when Russia halted its European gas supply. Nevertheless, in the first half of 2022, the number of active gas-drilling rigs increased by around 48% to 157, according to statistics from oilfield services company Baker Hughes.

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The current market pricing is near $2.42 per million British thermal units (mmBtu). This is down sharply from almost $9 per mmBtu in August 2022 due to warmer weather and a protracted LNG export facility shutdown. The year before, the average cost per mmBtu was $5.46, the highest level in almost a decade.

Expectations for the future predict unchanged conditions. Enverus, a company specializing in energy technology, forecasts that prices would remain around $2.50 per mmBtu over the summer, a decrease from an earlier estimate of $3.50 per mmBtu. From 2022 to 2023, output is projected to increase by 1.7 billion cubic feet per day (bcfd), from 3 bcfd in 2022.

Europe looks fine

INES, a consortium of German gas storage providers in Europe, stated on Thursday that there is no possibility of a gas shortage this winter. The consortium cited decreased demand and enough supply after stocks were filled to capacity.

In an online presentation of monthly statistics to reporters, managing director Sebastian Bleschke noted, that January did not include freezing weather and was characterized by continued consumption savings. So we will survive this winter.

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In order to replenish stockpiles ahead of winter 2023/24, seaborne imports of liquefied natural gas (LNG) would need to continue at high levels, according to INES, which will outline winter 2023/24 supplies in its April report. The Ukraine conflict halted pipeline shipments from Russia.

Short-term rally soon?

The short-term chart remains negative, but a multiple-bottom pattern is building, with $2.35 serving as support. If this is the case, there may be a significant price rise once the price breaks above the formation’s neckline around $2.65. The formation’s potential would be around 12%, predicting a climb toward $3.

Nat gas

Natural gas 2H chart, source: tradingview.com, author’s analysis

Tomáš is a financial reporter with US markets as his main field. Tomáš is an aspiring author and entrepreneur aspiring to help people get better in financial knowledge.

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