Volatile NYMEX Natural Gas Price Jumps 10% in Single Day
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.
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Last week MDN brought you the latest U.S. Energy Information Administration “Short-Term Energy Outlook” for September (see 
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. Last month the Short-Term Energy Outlook (STEO) prediction for Henry Hub natural gas in 2H22 was $7.54 per MMBtu, and for all of next year $5.10, due to an increase in production (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.
A futures contract is a legal agreement to buy or sell a particular commodity asset (like natural gas) at a predetermined price at a specified time in the future. The Henry Hub Natural Gas futures contract (NG) on the New York Mercantile Exchange (NYMEX) is widely used as the national benchmark price for natural gas. The Henry Hub (HH) is located in southern Louisiana where 16 interstate natural gas pipeline systems converge. But just about any trading hub along natgas pipelines can have a futures contract associated with it. For example, the Eastern Gas South hub in southwestern Pennsylvania (which used to be called Dominion South) has monthly futures contracts extending out for years. Eastern Gas South and other M-U hubs are seeing the price for futures contracts drop like a rock compared to HH. Why? Lack of takeaway pipeline capacity.
We’re carefully watching for the day when the futures price of Henry Hub natural gas passes the important psychological barrier of closing above $10/MMBtu. We came close yesterday. Early yesterday the NYMEX September (“front month”) contract shot up to an intraday high of $9.98. But ultimately, the price closed at the end of the day at $9.68, which was up 34.4 cents from Friday’s close (and a new 14-year high). What drove the price in this latest race to the top? Dominoes.
Volatility is defined as “liability to change rapidly and unpredictably, especially for the worse.” Price volatility is the price of something (like natural gas) making big swings, both up and down, quickly and without warning. For years the price of natural gas was pretty much constant–it moved up or down here or there, but in very small increments. In fact, on MDN, we called the price of natgas, which was stuck under $3/MMBtu, “lower for longer.” But those days are now behind us. The price of natgas is high, and the swings up and down in the price for natgas are extreme. According to a new analysis by the U.S. Energy Information Administration (EIA), natural gas price volatility hit an all-time high during the first quarter of 2022.
Yesterday MDN poked fun at the gyrating up-and-down predictions from the U.S. Energy Information Administration (EIA) with respect to the spot price of natural gas at the benchmark Henry Hub (see 
Enverus, a leading global energy data analytics and SaaS technology company, earlier this week released Macro Forecaster, a new report that assesses the continued impact of COVID-19, the Ukraine war, and the weakening global economy on near-term oil and gas balances. Enverus predicts the price of oil will be somewhere in the range of $80s or $90s per barrel by the end of this year. The company also predicts natural gas will slump to about $4.50/MMBtu by next summer.
Not all that long ago, the spot (physically traded) price of natural gas around the Marcellus/Utica region, and the regions it feeds, including the Southeastern U.S., had some of the lowest spot prices for natural gas in the U.S. We recall being excited to see the price per Mcf (or MMBtu) get above $1 in northeastern PA. That all changed over the past year or so. According to RBN Energy, “cash and forward prices in the Mid-Atlantic and Southeast have rocketed, becoming the highest gas prices in the land, and in some cases are at never-before-seen levels for this time of year.” What happened? Why is the price so high now, in a region flooded with natural gas, where once we couldn’t get the price to go over a dollar?
There’s something of a mystery brewing–something nobody seems to be able to explain. Since January, the U.S. rig count has added 150 rigs–hitting the highest level of rigs active in the field since late 2019. In addition, new well counts are up, and more completions are happening. More rigs and more wells getting drilled and completed. Yet natural gas production this summer has evened out and is not increasing. Why?
Trying to follow the ups and downs of natural gas prices–predicting where prices will go–will drive you crazy. A little over one month ago, the NYMEX front-month futures price for natgas was hitting new modern highs, closing in on $10/MMBtu (see 
According to Bloomberg, natural gas is “the hottest commodity in the world” right now. Since the start of last year, the price natural gas fetches in Europe has risen a staggering 700 percent! In a separate article from the U.S. Energy Information Administration, the EIA points out the Henry Hub NYMEX price of natgas has doubled over the past 12 months. Natural gas, says Bloomberg, now rivals oil as the fuel that shapes geopolitics. And there isn’t enough of it to go around. This is a golden opportunity for the U.S. to produce and export more of it.