US NatGas on Track for Record Low Demand in January
U.S. natural gas demand is on track to hit record lows in January if unseasonably warm weather sticks around, according to Rystad Energy. It’s just too darned warm! The warm weather reduces demand for natgas used in heating. Also, as you will read today, a Freeport LNG restart that uses 2 Bcf/d is also likely delayed further–maybe until the end of February. Given the warm weather and Freeport, demand is down, and because of lower demand, prices are crumbling.
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The NYMEX Henry Hub price for natural gas is once again in freefall. Over the four previous trading sessions, the price has crashed $1.29/MMBtu (down 25%) to settle yesterday at $3.99. We haven’t seen prices this low since February 2022. Weather is the culprit. Baby, it’s warm outside! So, where is the price heading in 2023? Let’s try to answer that question.
The Marcellus/Utica is THE number one natural gas-producing region in the country–by far. Much of the country, including the M-U, was affected by the bomb cyclone called Winter Storm Elliott over the Christmas break. The bitter cold froze off wells and caused the M-U region collectively to experience a temporary drop in production of roughly 27%. Pennsylvania’s production dropped around 20%, while Ohio’s production dropped 50%.
While the commodity price of natural gas has always drifted up and down, we can’t remember a time (in our coverage of the industry) when it has been so volatile–with wide swings in both directions–as it has been in 2022. Yesterday was another “bottom is dropping out” down day when the NYMEX futures price at the Henry Hub fell by $0.52. The NYMEX price has fallen three days in a row and is down a total of $1.64 (or 23.6%) over those three days.
The front-month NYMEX futures contract (based on the price of gas trading at the Henry Hub) dropped like a rock yesterday–down 70 cents (-12.6%) to $5.58/MMBtu. The price has dropped for the past four trading days in a row. Some say it’s free fallin’. In total, the price has lost $1.66 (-22.9%) over the last four sessions. NYMEX trading during the day yesterday hit its lowest point since March of this year. Why? Mainly a warm short-term weather forecast, coupled with the continuing outage at the Freeport LNG export facility.
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.
Here’s something you don’t often see: The price that natural gas is fetching in the eastern part of the country is significantly higher than the price gas fetches at the benchmark Henry Hub in southern Louisiana. The heat wave hitting the country’s middle section and points east is the main driver, but so is a lack of natural gas pipelines from the Marcellus/Utica to southern states.
Natural gas-fired power plants have become a very important customer and user for Marcellus/Utica (and other shale play) natural gas. This week may set a new record for power plant usage of natgas. Temperatures across the south and Midwest (and northeast) are set to break records. Consecutive days of 100+ degrees Fahrenheit are forecast for Texas, Kansas, Missouri, Tennessee, Mississippi, and others. According to S&P, this Thursday (July 21), U.S. power burn is forecast to use an average of 48.6 Bcf/d of natgas in what would be a new single-day demand record.
Strap in–the roller coaster ride continues. Yesterday the NYMEX Henry Hub front-month (July) futures contract for natural gas plunged 10%, by $0.62, following news that more gas was stored (“injected”) than previously anticipated by analysts and traders. Storage inventories rose to 2.169 Tcf (trillion cubic feet) for the week ended June 17 following a 74 Bcf (billion cubic feet) injection. Most people thought the injection would be no more than 60 Bcf. No doubt the ongoing outage at Freeport LNG pushing an extra 2 Bcf/d on the domestic market had something to do with the extra storage build. Models predict cooler weather is coming in the next few weeks. Throw it all into the pot–higher storage, Freeport offline, and cooler weather–and traders got spooked.
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.
The weather turning a bit cooler along with a three-week planned maintenance outage at the Cove Point LNG plant in Maryland is causing the spot price for natural gas in the Marcellus and Utica to fall precipitously. Of course the price recently, over the past few weeks, rose precipitously–so a sudden fall is not all that unusual. How much has the price fallen and how far will it go down?
MDN editor Jim Willis has had several conversations this past week about the price of natural gas and how prices in the Marcellus/Utica are influenced by national and international events. “Is it possible,” one questioner asked, “to say that if the NYMEX price is X, then my local trading hub in the M-U will likely be X plus or minus Y?” Unfortunately, the answer is no. There is no one “price” of natural gas. The Henry Hub futures price (the NYMEX) is often quoted as “the” price, but in reality, there are hundreds/thousands of prices. Natgas is a commodity and traded at hundreds of points along major pipelines throughout the country. This post attempts to explain more about the complex landscape of what influences the price of natural gas where you are.
Yesterday the July NYMEX gas futures contract (the current contract) went up by 8.5 cents to settle at $3.42. The August NYMEX futures contract closed at $3.44, also up 8.5 cents on the day. The big question is why? The short answer is that less gas was put into storage than expected for this time of year. The slightly longer answer is that less gas went into storage because of the hot weather and all those air conditioners whirling using all that electricity and all that electricity gets generated in big part by burning natural gas. So the bottom line is this: Natural gas futures prices popped yesterday because of the weather.