After a dramatic run-up in natural gas prices in 2022 due to increased demand, particularly from Europe, prices plummeted throughout the winter. The fundamentals support this trend, yet there is reason to believe that prices have overshot the mark. Fitch Ratings revised down its 2023 and 2024 Henry Hub (HH) price deck to $3.50 per thousand cubic feet (mcf), which is above current strip pricing of $2.87/mcf, from $5.00/mcf in 2023 and $4.00/mcf in 2024. We maintained our long-term price assumption for HH unchanged at $2.75/mcf. Rated natural gas producers in the U.S. and Canada are generally protected from short-term declines in prices through hedges. Natural gas prices were very volatile in 2022. Economic activity drove significant demand in the U.S.

Added to this was increased liquified natural gas (LNG) export demand, primarily from Europe, as it lost Russian natural gas supply through sanctions. European countries materially increased LNG cargo demand throughout the summer in an effort to build up inventories to ensure supply during winter heating months.The U.S. and Europe experienced generally mild winter weather. This, paired with Europe’s successful efforts in filling up storage in the summer, led to steep declines in natural gas pricing through the winter.
Source: Fitch Ratings