February 2024 highlights
  • Henry Hub front-month prices have remained largely subdued since last winter, with price volatility diminishing in tandem
  • A January cold snap saw a rebound in front-month price volatility to levels last seen in April 2023
  • We look at volatility drivers of the last few years, alongside a look forward

Henry Hub volatility ticks up in January

Henry Hub front-month prices have remained largely subdued since last winter, owing to resilient U.S. shale gas output and ample storage inventories weighing down prices, with price volatility diminishing in tandem across 2023. 

However, a January cold snap across North America saw a sharp increase in demand for heating, causing dramatic gyrations in the spot market and a notable rebound in front-month price volatility to levels last seen in April 2023.

Along with weather fluctuations, variability in U.S. natural gas balances can be induced via its interactions with the global LNG market. Historically, this has occurred during two regimes.

  1. Unconstrained LNG exports: when global oversupply tests the variable-cost economics of U.S. LNG export facilities (e.g., September 2020), the U.S. domestic market is balancing alongside more volatile global gas markets.

  2. Constrained LNG exports: unexpected facility outages (e.g., Freeport) can force volumes to remain in the U.S. market, quickly altering domestic balances. 

A convergence of global gas prices with U.S. prices is a possibility once again this decade due to the coming wave of new LNG supply, which would have significant implications on Henry Hub volatility (and correlations with global gas markets).

Greater price volatility raises the importance of both physical and financial optionality for effective risk management by market participants exposed to Henry Hub. This was evident in the record trading volumes of Henry Hub Natural Gas (LN) options throughout January.

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