High Price of NatGas Impacts U.S. Chemical Companies
Price inflation is a vicious thing. Once it gets going, it’s hard to stop. Much of the current situation of high prices (for everything) can be laid at the feet of our politicians in D.C. who dumped enormous amounts of money into the economy by simply printing it ($1.5 trillion infrastructure bill, several multi-trillion dollar COVID bills, etc.). Wages are up, the cost of goods and materials has gone higher, and it affects everything. Add to that the Russian war of aggression against Ukraine, the lack of coal-to-gas switching (see today’s companion story)–and voila, the price of natural gas has almost tripled over the past year. The high price is about to affect a whole lot more of our economy.
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Yesterday MDN told you we would likely see the front-month NYMEX natural gas contract settle above $8/MMBtu by the end of yesterday (see 
Natural gas traders’ nerves have gotten the better of them. Yesterday the NYMEX “front month” futures contract price for natural gas hit $8.14/MMBtu before falling back to close at $7.95. That is the highest price NYMEX gas has traded for in the past 14 years–since 2008. The main reason for this most recent spike up seems to be chatter about European countries imposing tighter sanctions on Russia, and the very real possibility Russia may retaliate by cutting off gas supplies to European countries beyond Poland and Bulgaria. A contributing factor is a temporary decrease in pipeline flows in both the Bakken and the Marcellus/Utica.
As a way of avoiding the pain of worldwide sanctions against his country over the invasion of Ukraine, murdering thug dictator Vladimir Putin has demanded that countries he sells natural gas to (namely in Europe) pay him in roubles. Most countries have refused his demand, so last week Putin began cutting off natgas shipments–so far to Poland and Bulgaria. However, more European countries are in Putin’s crosshairs to cut off supplies. If that happens, you can expect the price of natural gas worldwide to skyrocket, says an analyst with Rystad Energy.
An article in the Pittsburgh Post-Gazette highlights and focuses on the financial performance for four of the Marcellus/Utica’s largest publicly-traded companies, including EQT Corp., Antero Resources, Range Resources, and CNX Resources, during first quarter 2022. Even though the price natural gas is fetching is higher than it’s been in 14 years, M-U drillers are losing money. Why? Hedges and derivatives–bad bets on where the price of gas would go and locking in prices much lower than what the market currently supports.
When you only have one main pipeline flowing natural gas from the prolific Marcellus Shale to your region, as does Boston, if that pipe has an outage for any reason, as the Algonquin Gas Transmission (AGT) has had, you’re in trouble. AGT declared a force majeure (an unforeseen act of God) on the 26-inch line of its J System in Massachusetts. The outage in one particular section of the pipeline means “slashing nominations downstream of Trapelo to zero for the foreseeable future.” Ouch. Guess what’s happening to the price of natural gas at the Algonquin Citygates natgas trading hub? Through the roof.
New modern era records continue to be broken. The Henry Hub “front month” NYMEX futures price for natural gas briefly traded over $8/MMBtu yesterday before closing at $7.82/MMBtu (up $0.52 for the day). It certainly looks as if soon, possibly today, the NYMEX price will fly by and close at a price higher than $8/MMBtu. The rapid rise in price, now closing in on the highest in 14 years, is really quite breathtaking. However, some analysts are warning of a correction.
Yesterday the “front month” price of natural gas trading on the NYMEX Henry Hub closed at $7/MMBtu, the highest NYMEX price in 13.5 years (since Nov. 10, 2008). It was just two days we told you the NYMEX price was making a run for $7, closing at $6.64 on Monday (see 
Yesterday the NYMEX Henry Hub futures price (front month) contract rose $0.32 (5.3%) to close at $6.03/MMBtu. That’s the first time since January the price has broken $6. Why the bump in price now? Is it because of the war (everything is blamed on the Ukraine war these days)? Nope. At least, mostly not because of the war. As always, the factors that drive the price of natural gas here in the U.S. are complex. A number of things together are responsible, but mostly (as is usual) it is the weather driving the higher price.
Sort of a mixed bag with respect to recent prices for natural gas. While the spot cash price as a national average has slipped a bit, down 83 cents over the past week to $4.84, the NYMEX futures contract price for the “front month” of April soared past $5. In fact, if you look at the NYMEX contracts for each month over the next one year, they are ALL closing above $5/MMBtu.
According to Rystad Energy’s senior oil market analyst, market panic is officially here. Because of the ongoing war of invasion, with Russia invading and attempting to annex Ukraine, world oil markets are unhinged. After the market closed yesterday, Brent crude surpassed $115/barrel to touch its highest level since 2008. West Texas Intermediate (WTI) closed yesterday at $110.60/barrel. The war and its associated chaos and uncertainty is affecting other commodities too, like natural gas (NYMEX up 4% yesterday), agriculture, and precious metals. Supply disruptions are expected. Everyone is hitting the panic button.
We love a good contrarian point of view. We brought you news today of the market in a panic with the price of oil and natural gas heading higher based on fears over the Russian invasion and war against Ukraine. But right on cue, we spotted an article/analysis on the Seeking Alpha investors’ website that makes the case that natural gas prices will soon head much lower–back down to the $3/MMBtu range. At least here in the U.S. Why?