Nov. EIA STEO Slashes Prediction for NatGas to $6/MMBtu in 4Q
Once a month, the analysts at the U.S. Energy Information Administration (EIA) grab the official Henry Hub pricing dart board and play a quick game to determine what price they will predict for the average Henry Hub spot price for natural gas for the rest of this year, and an average price for all of next year. Two months ago (in September), EIA predicted in its Short-Term Energy Outlook (STEO) that the Henry Hub average price for natural gas in the fourth quarter of this year would hit $9/MMBtu, and the average for all of 2023 would be around $6/MMBtu (see Sept. EIA STEO Predicts $9 NatGas in 4Q22, $6 NatGas for 2023). The darts were flung again last week and this time landed on $6/MMBtu for 4Q22 and $5.46 for 2023.
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Natural gas prices in North America hit record highs in 2022. In fact, prices quadrupled from what they were before the onset of the pandemic in March 2020. Winter is the time of year when we use the most natural gas–both for heating and to power electric generation. The question arises, what will prices do this winter with an increase in demand? A McKinsey & Company analyst answers that question. He says three key factors could *decrease* natural gas prices in North America in the short term (i.e., this winter). What are those three factors?
What the heck is going on with natural gas prices? Last Friday, the NYMEX futures price (based on the Henry Hub spot price) lost another $0.40 to close at $4.96/MMBtu. NGI’s Weekly Spot Gas National Average dropped $0.54 to $4.99/MMBtu. The NYMEX lost $1.49 last week, representing a 23% drop in price–in one week! Last week marked the longest losing streak for natural gas prices (9 straight weeks) since the week ending Feb. 8, 1991, when the market fell for 11 straight weeks. Yuck.
Although there are multiple (and complex) factors that work together to drive the price of natural gas up or down, there is one factor that typically stands head and shoulders above the rest: weather. Even though Europe is still in a pickle with lack of natgas supplies and bidding against Asia to attract said supplies from the U.S., and even though domestic demand from sectors like power generation and even home heating is on the increase, and even though domestic natgas in storage is way below the five-year average, all of which would normally indicate higher demand and therefore higher prices–the weather trumps everything. Warm weather predictions (meaning less demand) have caused a drop in the price of the NYMEX front month contract by 71 cents in the past two days. The price is now at a three-month low.
U.S. natural gas production is projected to increase a big 4% this winter, but lower-than-average storage along with an estimated 2% increase in demand will combine to place upward pressure on natural gas prices compared to last winter. So says the Natural Gas Supply Association (NGSA) in its 22nd annual Winter Outlook forecast of the wholesale winter natural gas market (an executive summary of the NGSA report is embedded below).
Each month the U.S. Energy Information Administration (EIA) publishes a huge report called Natural Gas Monthly. Last Friday, EIA issued the latest (September 2022) edition of the report. There is a LOT of information in the report–statistics, data, charts, you name it. And the report covers not just the U.S., but natural gas flows for all countries around the world. One aspect of the report deals with prices. The analysts at EIA excerpted some of that information into a post on the agency’s Today in Energy website, comparing the price of natural gas for both residential and commercial customers this year with the five-year rolling average. In real terms, the 2021 annual residential price was the highest since 2014, and the commercial price was the highest since 2015. It looks like we will fly by those statistics in 2022.
According to a column by a Reuters analyst, U.S. natural gas production will need to increase significantly to continue growing LNG exports while ensuring natgas remains affordable for domestic electric power producers, households, and industrial users. This is the first article (we’ve seen) that puts numbers to the claim that LNG exports are beginning to drive the price of domestic natgas to higher levels.
Last month OPEC’s oil production fell short by 3.58 million barrels per day (bpd), which is 3.5% of global oil demand. The U.S. continues to sell oil out of the Strategic Petroleum Reserve, nearing the end of what can be sold off. And Russia’s oil exports could fall by some 2.4 million bpd after the EU embargo enters into effect in December. Add to that mix the observation by Saudi Aramco’s CEO, who 
In a clear sign the Democrat Party is desperate with a national election (national referendum on Biden) just 44 days away, our beneficent Dictator in Chief, Joe Biden, has demanded that companies running gas stations, “Bring down the prices you’re charging at the pump to reflect the cost you pay for the product. Do it now. Do it now. Not a month from now — do it now.” He sounded like a raging lunatic when he said it. High prices at the pump are the result of Biden’s own socialist, very misguided policies. Yet he attempts to scapegoat and blame it on the thousands of individual companies that vend gasoline in a free-and-open market.
The price for the “front month” NYMEX natural gas contract, which trades based on the spot price of gas at the Henry Hub in southern Louisiana, dropped again on Friday–closing at $6.83/MMBtu. Most predictions we’ve seen say that natural gas will average much higher both this year and next–in the $9 or $10 range. So why is the price dipping right now, and will it stay low?
Yesterday MDN brought you the news that on Wednesday, the NYMEX price of natural gas soared 10% in a single day, due largely to the threat of a nationwide rail strike that would limit coal shipments to electric generating plants, causing huge demand for natural gas (see 
Here we go again. Just a few days ago, the benchmark NYMEX price for natural gas (the “front month” contract for October) was trading below $8/MMBtu. Yesterday the price spiked up 10% in a single day–up 83 cents to $9.11. This was the 11th time this year the NYMEX price has either spiked or fallen by 10% or more, which hasn’t happened since 2001, when it spiked or fell 10% or more for 14 days. The watchword is volatility. Wild swings. The question is, Why did the price spike yesterday in particular? We have an answer.
Last week MDN brought you the latest U.S. Energy Information Administration “Short-Term Energy Outlook” for September (see 
The U.S. natural gas NYMEX futures price for the “front month” October contract lost another 3.8% on Tuesday, hitting a four-week low, closing at $7.84/MMBtu. The NYMEX price is down over 13% over the past week. However, gas storage inventories are 11% below their five-year average. So what gives? Why is the price crashing, yet inventories (supplies) are low? It’s back to economics 101–supply and demand. The overall supply (production) of natural gas has gone much higher, according to recent EIA reports. Because of cooler temps (less demand for natgas at power plants), there is less demand overall. More supply with less demand equals lower prices.