Inflation-adjusted US gas prices have fallen to the lowest level for more than 30 years due to a wild winter easing demand and continued production growth leaving a growing surplus of inventories.

On 15 February, front-month futures for gas delivered at Henry Hub in Louisiana fell to $1.58 per million British thermal units, the lowest in real terms since the futures contract was launched in 1990.

Nevertheless, gas supplies remain high. On 9 February, working gas stocks stood at 2.54 trillion cubic feet (tcf), the highest for this time of year since 2016, according to data from the US Energy Information Administration (EIA).

Inventories were 16% above the ten-year average, increasing from 2% above the average at the start of the heating season on 1 October.

Although there was a cold snap in the middle of January, the winter of 2023/24 has been warmer than average, reducing demand for direct gas as well as gas-fired power generation. December was unusually mild, causing inventories to deplete by only 300 billion cubic feet (bcf), the smallest drop for that month since 2015, compared with a ten-year average draw of 478bcf.

The warmer weather has been largely caused by the El Niño in the central- eastern Pacific, which have directed warmer air into the northern US. The knock-on effect of higher temperatures has been an 11% reduction in demand for heating so far during winter 2023/24.

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Lower prices signal the need to slow down drilling and production. The number of rigs for drilling declined to an average of 119 in January 2024, marking a delayed response to the fall in prices after they spiked following Russia’s full-scale invasion of Ukraine in February 2022. The average was 162 in September 2022.

However, productivity at rigs has continued to increase over the past five months as companies narrow their focus on the most prospective locations and drill longer horizontal well sections.

Last week, the Republican-held House of Representatives passed a bill seeking to reverse the Biden administration’s decision to freeze the approval of liquefied natural gas exports.