Gas prices have already begun to drop since this month based on expectations that the climate in the central US will remain relatively warm in the near term.
The number of rigs used for gas drilling dropped to a minimum for more than 30 years in July, says Baker Hughes, an oil and gas services company. Gas production declined in June and recorded its first year-on-year decline in three years in a marked turnaround from 12% growth in June 2019.
At the same time, low prices have encouraged maximum use of gas power generation at the expense of coal.
Electricity producers consumed a record 1,374 bcf of gas in July, up almost 8% compared to July last year.
Background gas consumption by energy producers has increased in recent years with the commissioning of more gas generation units and the decommissioning of coal plants.
Electricity producers added 20 GW of extra gas generation capacity between late 2017 and late 2019, while decommissioning 28 GW of coal-fired capacity.
This year, even more gas-powered units have been added along with further coal withdrawals, which will further increase gas consumption.
If there is a prolonged cold spell, the gas consumption of energy producers is likely to increase sharply, resulting in a very rapid decline in inventories.
Futures prices have already risen significantly between…
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