Research Analyst Predicts U.S. Natural Gas Headed Down to $3/MMBtu
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?
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There was a time in the Marcellus/Utica when, if the price of natural gas went above $3/Mcf, drilling companies would drill like crazy. Cabot Oil & Gas (now Coterra Energy) would routinely drill wells when the price in the region was less than $1/Mcf! And somehow they made money. With prices hitting above $4/Mcf routinely, even flirting with $5/Mcf, you would think M-U drillers would ramp back up and try to make hay while the sun shines. But M-U drillers are not. They are showing remarkable restraint in NOT expanding their drilling programs. Why?
In direct contravention to the advice, pressure, and bullying of Joe Biden’s “Special Presidential Envoy for Climate” John Kerry, who insists that banks and investors refuse to fund oil and gas companies, big banks around the world (and here in the U.S.) are disregarding Kerry’s hot air and, with $100/barrel oil almost here, opening up the door to the bank vault and showering oil and gas with money once again. Hey John, money talks and (you know what) walks…
According to S&P Global Platts, spot gas prices across the northeast and Appalachia were “trading sharply lower Feb. 7.” It is, says Platts, “a dynamic that could continue into the second week of February, as stronger regional gas production and higher temperature forecasts loosen supply and demand fundamentals.” How much lower are prices trading? The Eastern Gas South trading hub (formerly Dominion South) fell by almost $1/MMBtu yesterday. The Columbia Gas, Appalachia trading hub fell more than $1.
In recent weeks and months, MDN has beat the drum about the high price of natural gas and electricity (generated by burning natural gas) in New England (
Last Thursday the NYMEX Henry Hub futures contract for natural gas went on a wild ride, closing up $1.99 (46%) from the previous day (see 
Last week we brought you the bitterly disappointing news that the clown judges of the U.S. Court of Appeals for the Fourth Circuit (the 4th Circus) have, for a second time, overturned permits for Mountain Valley Pipeline (94% complete!) to build through 3.5 miles of Jefferson National Forest (see 
Yesterday afternoon the price of the NYMEX Henry Hub “front month” February futures contract for natural gas went on a wild ride. The February contract, due to expire at the end of trading, at one point sold for $7.40/MMBtu, up some 72% in a single day! The price finally settled at the end of trading at $6.265/MMBtu, up $1.99 (46%) from the previous day. It was the single biggest spike in the price of the front contract ever, since the contract launched in 1990 and the largest one-day gain on record. What in the world happened? And is this an indicator of higher prices to come?
We’re seeing mixed signals for the price of natural gas in the Marcellus/Utica and where it may be heading in the near future. One set of signals is the day-ahead cash price (“spot price”)–the deals to sell physically-delivered natural gas at a certain price at a particular hub/location. The spot price for M-U gas at hubs like the Eastern Gas South (widely viewed as the benchmark in the M-U region), is up. But the forward price is, if anything, down a bit.
The experts at S&P Global Platts have hauled out the old crystal ball–the one that looks at natural gas prices in the near-term (next couple of weeks to a month), and they foresee a rise in prices coming very soon. According to Platts, a drop in U.S. natgas production combined with colder weather that forces the use of natgas for heating which leads to tighter supplies means the price of natural gas will rise. How much and when?
S&P Global Platts Analytics is reporting natural gas production in the Marcellus/Utica (which they call Appalachia) has “tumbled.” After reaching a record-high 34.8 Bcf/d (billion cubic feet per day) in late December, Appalachia gas production fell to an estimated 33.3 Bcf/d on Jan. 14 (down 4%). The drop in production has caused the price of gas at regional trading hubs like Eastern Gas South (formerly Dominion South) to jump. Eastern Gas South is up 34 cents from the beginning of January.
Did you catch the huge spike in the NYMEX Henry Hub futures price yesterday? Day over day, the February NYMEX contract price increased by $0.61 to close at $4.86/MMBtu–up 12.52% in a single day. Similarly, the March NYMEX futures contract jumped by $0.36 cents to close at $4.33. Why the big gains? In a single word: weather.
According to the U.S. Energy Information Administration (EIA), natural gas spot prices at Henry Hub averaged $3.91/MMBtu for 2021. Each month the EIA issues a Short-Term Energy Outlook (STEO). In the latest STEO update for January, EIA predicts that the annual average HH price will average $3.79/MMBtu in 2022, down $0.12 from 2021. EIA further predicts the HH price in 2023 will go down yet more, to an average of $3.63.