Dec. STEO Predicts 40% Higher NatGas Price for Winter 2024/25
The U.S. Energy Information Administration (EIA) issued its latest monthly Short-Term Energy Outlook yesterday, the agency’s monthly best guess about where energy prices and production will go in the next 12 months. In October, the EIA predicted the average spot price for natural gas would be $3.10/MMBtu in 2025 (see Oct. STEO Predicts Lower Output, NatGas Price to Avg $3.10 in 2025). Last month, the agency reduced that number by $0.20 to $2.90/MMBtu (see Nov. STEO Predicts Henry Hub Gas Price to Average $2.90 in 2025). The yo-yo continues to gyrate. Yesterday’s report predicts the price will average $3.00/MMBtu for the rest of the winter and all of 2025—some 40% higher than the average price in November. Read More “Dec. STEO Predicts 40% Higher NatGas Price for Winter 2024/25”
Yesterday, the Pennsylvania Independent Fiscal Office (IFO) released its latest quarterly Natural Gas Production Report for July through September 2024 (full copy below). There were 63 new horizontal wells spud (drilled) in 3Q24, the same exact number as in 2Q24, but 3Q’s number was a decrease of 39 wells (-38%) compared to the third quarter of 2023. The number of new wells drilled, 63, is the lowest since 2008 (except for 2Q24, which was also 63). This was the eighth consecutive quarter with a year-over-year (YOY) decline in new wells spud. Natural gas production volume was 1,838 billion cubic feet (Bcf) in 3Q24, down 33 Bcf (1.8%) from the 1,871 Bcf produced in 3Q23. 
According to a Reuters analyst, natural gas prices in Asia, Europe, and North America have climbed by 30% to 50% in 2024 and are likely to keep rising over the coming months in early 2025 as forecasts for cold weather trigger higher heating demand in key consumer hubs. Although Europe entered the winter with “full” gas stocks, Europe and Asia are already looking to restock by buying more natgas (LNG), spurring demand for LNG. That should ensure gas traders will remain bullish (pushing prices higher) until the upcoming winter is over. Gas prices “may have little scope to retreat until well into 2025.” We like the sound of that! 
We don’t begin to get excited about the price of natural gas unless and until it’s above $3/MMBtu and it stays there for a while. We’re there. Yesterday, the “front month” contract for NYMEX Henry Hub natural gas closed up 6.2 cents (1.8%) at $3.43/MMBtu. Over the past two days, the price closed up 30.2 cents (9.65%). Yesterday’s closing price was a 52-week high. Finally. Why the dramatic increase? Weather. 
The incoming Trump administration will have a big emphasis on natural gas, including LNG (liquefied natural gas) exports. Lazy journalists and lazy economists try to scare the general public into believing more (new) LNG exports from this country will cause the price of domestic natural gas to skyrocket. Their arguments presume no increase in natgas production, which is a fallacy. There are many reasons why the price of natgas isn’t going to skyrocket from more LNG export approvals. 
The analysts at the federal U.S. Energy Information Administration (EIA) are cautioning (we’d call it warning) that the global natural gas market may experience a tighter supply-demand balance this winter than in the prior two winters. Why? Several reasons, chief among is the coming colder winter. El Niño changes to La Niña this season. La Niña generally brings colder, drier weather to the Northern Hemisphere. But weather isn’t the only factor for EIA. So, too, is the lack of growth this winter in new LNG exports from the U.S. 
Reuters predicts a sharp increase in U.S. LNG exports to European destinations “in the coming weeks.” Why? Because “the price spread between domestic natural gas and Europe’s main gas pricing hub hit one-year highs.” What the heck does that mean? We will explain it below. 
Yesterday, the NYMEX natural gas futures price for the “front month” (November) contract and the next contract in line to take over after today (the December contract) both dropped like a rock. The November contract (called the prompt month) dropped 25.1 cents to close at $2.309/MMBtu. The December contract, which becomes the prompt month tomorrow, dropped 22.9 cents to close at $2.863. Why the drop? It depends on who you ask, but the warm weather in the northeast seems to be one of the primary reasons. 
The U.S. Energy Information Administration (EIA) recently published an interesting post about natural gas pricing hubs in North America. There are nearly 200 such pricing hubs. The hubs “provide transactional flexibility to buyers and sellers in the natural gas industry.” As we’ve pointed out before, there is no one “price” for natural gas. Prices at various trading hubs can vary significantly. All pricing hubs compare themselves to the Henry Hub “benchmark” hub in Southern Louisiana. You may read about such-and-such as a hub trading a “discount” or “premium” to the HH. The EIA post explains how these hubs work and provides examples from various locations around the country, including three hubs in the northeast that flow Marcellus/Utica molecules. 
While there are a number of interstate pipelines that crisscross the Marcellus/Utica, there is one pipeline system that is key to moving molecules out of our region to other markets, particularly in the southeast and the Gulf Coast: Transcontinental Gas Pipeline LLC (Transco), owned by Williams. Transco stretches from the Gulf Coast to New York City and was originally designed to flow gas produced in the Gulf northward. A number of years ago, Williams reversed the flow on Transco, and most of the time, it now flows M-U molecules southward to Maryland, North Carolina, South Carolina, Georgia, Alabama, and beyond. When sections of Transco undergo maintenance, flows are reduced, driving down spot prices for natgas sold by drillers to the pipeline but raising the price paid by customers on the other end of the pipeline. And when maintenance is done and flows return, it reverses. 
Toby Rice, CEO of EQT Corporation, currently the largest natural gas producer in the U.S., spoke yesterday at the Gastech event in Houston. Rice expressed his view that the Henry Hub price for natural gas will remain below $3/MMBtu “in the short term.” He also had thoughts on how long companies like his will continue to curtail natgas production. Rice said curtailments will “ease by next year” when more LNG exports begin to pick up. Said another way, Rice expects to continue holding back at least some supply for the balance of this year. 
In yet another attempt to deflect attention away from Kamala Harris’ extreme position on fracking (she wanted to ban it completely everywhere in 2019), mainstream news continues to publish stories on other Pennsylvania energy topics. For example, yesterday, the New York Times published a story with this headline: “Big Energy Issue in Pennsylvania Is Low Natural Gas Prices. Not Fracking.” We forced ourselves to read it all the way through. We “took one for the team,” so you won’t have to. The story started out fine and made some legitimate points. The NYT article is (more or less) right as far as it goes. The problem is that the article doesn’t go far enough. It stops with only half of the story told. Here at MDN, we tell you the whole story—all of the facts, not just some of the facts.