NYMEX Henry Hub Crashing and Burning – Lowest Close in 30 Months
We consider $2/MMBtu to be “the basement” when it comes to the price of natural gas trading at the nation’s benchmark Henry Hub in southern Louisiana. Yesterday we almost hit the bottom of the basement, with gas closing at $2.03. What happens if gas (gasp) closes below $2? Do we call that the sub-basement? Are we breaking through the barrier and right down into hell? Whatever you call it, prepare yourself. Why did gas tumble again yesterday to a new 30-month low? And will it go lower?
Read More “NYMEX Henry Hub Crashing and Burning – Lowest Close in 30 Months”
The past 18 months have been a wild ride for natural gas prices. We’ve gone from years of low prices to spiking near $10/MMBtu. In just the past few months, prices have dropped like a rock. The price dropped to a fresh 30-month low yesterday (see today’s lead story). The NYMEX price now threatens to dip below $2/MMBtu. Crazy! According to analysts speaking with Argus Media, we can expect continued wild gyrations in the price of natural gas “for the foreseeable future.” Some analysts say that volatility (sudden spikes up and down) in the price of natgas “could be here to stay.” As in permanently.
Once again, the NYMEX futures price, based on the physical Henry Hub price for natural gas, appears to be in a freefall. Yesterday, the NYMEX’s front month contract price (for April) lost 18 cents per million British thermal units (MMBtu), or 8%, dropping to $2.17/MMBtu. It sure feels like the bad old days when we couldn’t keep the price above $3/MMBtu. This is the second-lowest price this year so far. Yesterday’s price was 77% lower than the 52-week high of $9.68 hit Monday, Aug. 22, 2022. Why so low? Warm weather and high production.
We’re always a sucker for a good price prediction. Everybody and his brother (and sister) loves to predict where the price of the NYMEX Henry Hub will go in the next few months, or even for the next few years. Ratings agency giant Fitch, which owns the Fitch Solutions subsidiary, is the latest organization out with a prediction of where natgas prices will end up in 2023. Fitch says the NYMEX average for this year will be $3.60/MMBtu. Which is interesting, given for the past couple of months the price can’t get much above $2.50. Fitch must think the price will go quite a bit higher at some point this year in order to average out at $3.60 by year’s end.
CERAWeek, happening this week in Houston, Texas, is one of (perhaps THE) premier oil and gas conferences held each year. Everybody who’s anybody attends, except for yours truly. Sometimes it’s the things you (over)hear around the proverbial water cooler at such events that are more interesting than what is said from the stage or in media interviews. For example, Banpu’s BKV, with major assets in the northeast Pennsylvania Marcellus, filed plans with the Securities and Exchange Commission late last year to launch an initial public offering (see 
Enverus Intelligence Research (EIR), a subsidiary of Enverus, released its latest Macro Forecaster, a report developed for the financial services industry, yesterday. The new report is focused on the outlook for near-term oil and gas prices. Unfortunately, there wasn’t a lot of good news for the natural gas sector. According to Al Salazar, senior vice president at EIR, “Natural gas production has been resilient in 2023 in comparison to 2022, and we expect 2.9 Bcf/d of growth over the summer. Some of the growth will be offset by incremental LNG demand from Freeport LNG terminal’s restart and increased price-induced power burn growth, but natural gas prices will be under intense pressure.” Hmmm. We don’t like the sound of that.
Once a month, U.S. Energy Information Administration (EIA) analysts issue the agency’s Short-Term Energy Outlook (STEO), their best guess about where energy prices and production will go in the next 12 months. We poke good-natured fun at the EIA because one month, their predictions go up, the next month, down, etc. What about the latest STEO dart board, published yesterday? EIA slashed the price of natural gas at the Henry Hub another 11% from the previous monthly report (after cutting it 30% from the preceding monthly report), saying natgas will average $3.02/MMBtu in 2023, down from a forecast of $3.40 last month, and down from $4.90 the month before.
Even though the Freeport LNG export facility is in the midst of restarting and is now using 1.5 Bcf/d (billion cubic feet per day) of natural gas (out of a potential 2.1 Bcf/d when it’s operating at full capacity), the new demand coming from Freeport was not enough to counter the “bad news” that the weather will not be as cold as previously predicted over the next 15 days. Weather not-as-cold spells less demand for natural gas overall, and the lack of demand has translated to a crash in the NYMEX futures price based on the Henry Hub, the national benchmark for gas trading. Yesterday the “front month” NYMEX gas price contract dropped 44 cents (17%) in a single day.
According to a recent Reuters article, “A 46% drop in natural gas prices this year is rippling across the U.S. shale patch, threatening to slow drilling and chill deal-making in a move unthinkable six months ago as global demand soared.” Although the Henry Hub price for natgas rose over the past few days with the changeover to the NYMEX April contract, the price is still well below $3/Mcf. At that price, natgas drillers (in the Marcellus/Utica and elsewhere) are dialing back their drilling programs–essentially maintaining the status quo with production volumes. And at current low prices, mergers and acquisitions activity has pretty much dried up.
Here’s a fact that mainstream media largely ignores: Households in the Boston area pay about 50% more for electricity than households across the nation. On average, Massachusetts residents spend about $276 a month on electricity. That is 37% higher than the national average. An op-ed appearing in the Washington Examiner says New Englanders need to get used to these high prices. High prices for electricity are here to stay (for New England)–at least well into the 2030s. Why? Lack of pipelines, blocked by New England politicians.
We suppose you can file this story under the category of “damned if you do, and damned if you don’t.” We’re referring to hedging–the practice of locking in prices to sell gas you will produce in the future for a specific price now. Last year natural gas producers, including most (if not all) of Marcellus/Utica producers, were caught flat-footed when the price of natgas skyrocketed and their hedges were locked in for much lower prices. So as the hedges “rolled off,” many producers either elected not to hedge again, or hedged very little of their future production. And now prices have crashed again, meaning those producers are not protected and must sell most (if not all) of their production at very low market prices.
A financial analyst writing on the Seeking Alpha investors’ website wrote a detailed post outlining his thesis on why the price of natural gas is likely at the bottom now and will only go higher. He says that since natural gas prices are at or below breakeven levels for drillers, they are reducing their drilling rate. A negative shift in weather, falling rig counts, and the potential boost from Freeport exports may push natural gas back into a shortage over the coming months.
The Pennsylvania House Republican Policy Committee held a hearing yesterday in Harrisburg on the increasing energy costs that affect large and small businesses as well as homeowners. Several energy advocates, including Marcellus Shale Coalition President Dave Callahan, shared their thoughts and insights. High on the list of issues creating higher energy prices in the Keystone State are (1) the Regional Greenhouse Gas Initiative (RGGI, an obscene carbon tax), and (2) the ongoing issue of red tape from government bureaucracies like the Dept. of Environmental Protection.
Here in the northeastern part of the country, we are supposed to be getting clobbered by two days of super-cold, Siberian air–beginning today. The “otherworldly” temps are forecast to be in the minus 45 degrees Fahrenheit region in some places. Wind chill temps even lower. The spot (physically delivered, next day) price for natural gas in some locations in New England traded as high as $225 per MMBtu during the day yesterday. Even so, the national benchmark Henry Hub price (in southern Louisiana) sank another 1.2 cents to settle at $2.46/MMBtu.