Geopolitical Risk Premium In U.S. Gas Prices Is Evaporating

U.S. natural gas prices are back to reflecting the domestic supply and demand balances, shaking off – for now – the geopolitical premium that ruled the energy and natural gas markets throughout most of 2022 after the Russian invasion of Ukraine in February.  

U.S. weather forecasts for the winter, storage levels, and production trends were the biggest drivers of natural gas at the end of 2022 and the beginning of 2023, and will continue to be such in the coming months, analysts and forecasters say.    

This year and next, U.S. natural gas prices will average slightly less than $5 per million British thermal units (MMBtu), down by 25% compared to the 2022 average, the Energy Information Administration (EIA) said in its first monthly Short-Term Energy Outlook (STEO) for 2023 on Tuesday. Rising U.S. natural gas production, relatively flat LNG exports, and declining domestic consumption in the power generation and industrial sectors will limit upward pressure on prices in 2023, the EIA notes. 

The U.S. benchmark price at Henry Hub tumbled in the first trading days of 2023 to the lowest level in a year, falling below the $4/MMBtu mark due to a mild start to January after the Winter Storm Elliott on Christmas Eve and Christmas Day.   Last year, prices saw huge volatility, as did all energy commodities, after the Russian invasion of Ukraine roiled markets. The U.S. benchmark natural gas prices spiked to as high as nearly $10/MMBtu in August, when European natural gas prices were hitting records. The geopolitical premium was adding $2 to $3 per MMBtu to the U.S. natural gas prices at various points in 2022, Christopher Louney, a commodity analyst at RBC Capital Markets, told The Wall Street Journal this week.  

By the autumn and at the beginning of the winter, U.S. prices had fallen back to $5/MMBtu or below as they returned to reflect the American supply and demand fundamentals. Storage levels recovering back to the five-year average and warmer-than-usual weather—meaning low or very low demand—set the trend in prices at the start of 2023. 


Natural gas demand is expected to be low to very low over the next two weeks amid higher temperatures, with stronger consumption expected at the end of January as a colder spell is set to begin on January 24, according to NatGasWeather.

“It certainly seemed like yesterday’s 11% spike higher was overdone when considering there’s still nearly 2-weeks of record light national demand to trudge through. And now that overnight Feb’23 prices are back to $3.74, $4 suddenly seems far away,” NatGasWeather said on Tuesday. 

Natural gas prices globally are now more connected than ever due to the high American LNG exports, but even at record exports, LNG shipments out of the U.S. account for around 9% of America’s natural gas production. 

With European gas storage at a comfortable 82% full level as of January 9, compared to just over 50% at this time last year, the short-term outlook of U.S. natural gas prices looks bearish. 

That’s also due to milder weather in most of the northern hemisphere at the beginning of 2023, rising U.S. gas production, and expected stable U.S. LNG exports. 

“Gas prices are still very much influenced by the regional forces affecting weather and storage levels. Throughout much of 2022, storage in both the United States and Canada had been trailing the five-year average, but levels have now reached the five-year average in the United States and have almost reached that point in Canada,” Deloitte Canada said in its latest energy, oil, and gas price forecast

“The abundance of supply that can be brought to market and seasonally average storage levels mean that prices in North America will not likely reach elevated levels for long, if at all.” 

According to the EIA’s STEO out this week, “Despite our expectation that new LNG export facilities and expansion projects will come online in 2024 we expect natural gas prices to be relatively flat—with the possibility of lower prices—due to continued increases in U.S. natural gas production.” 

“We expect production in both the Permian region in West Texas and Southeast New Mexico and in the Haynesville region in Louisiana and East Texas to continue to grow with the completion of new pipeline infrastructure expansions in 2023 and 2024.”