Natural Gas Neutral/Bearish | Crude Oil Neutral/Bullish | Economy Neutral | Weather Bearish |
Weekly Natural Gas Report
The Energy Information Administration (EIA) reported a withdrawal of 151 Bcf out of underground storage for the week ending January 27. Inventories are 2,583 Bcf; gas inventories are 7% greater than the five year average and 9% greater than the same time last year. For the week ending January 24, Baker Hughes reports 160 natural gas rigs in operation, up (4) from the prior week. Crude oil rigs were reported at 609, down four (4) for the same period.
Weekly Power Report
Forward prices remained somewhat consistent week over week with some regions experiencing small price increases and some small price decreases. ERCOT saw price decreases of 4.4%-4.7% and ISO-NE saw price decreases of 2.4%. PJM saw increases of 1.2%-2.1% and MISO saw increases of 0.8%-2.5%.
Why Buy Now?
Having trouble closing deals due to high rates? We're here to provide you with the information you need to answer the recurring question; Why buy now?
We break down the answer to this question so you can come to the table with all the information you need to help your customer navigate these unprecedented market conditions.
Natural Gas Should be at Record Lows
Remembering all the way back to Economics 101, we know the first items of interest in making sense of any price are supply and demand. How much gas we have stored nationally is one of the most influential factors to the supply side of the equation.
With the delay in reopening of a major LNG export terminal and a near perfect fall weather scenario, natural gas storage levels have gone from historically low levels to just below average levels. Hidden in the numbers is with normal weather and LNG exports, the U.S. would be at record low levels of storage.
Since natural gas is used as the primary generation source for power, the risk of future low levels of storage will likely translate to natural gas and power prices continuing with the recent historical high volatility.
Natural Gas Exports are Soaring
With the loss of a major pipeline between Russia and Europe, European countries are forced to source gas elsewhere, and places the United States as the top new supplier. This provides U.S. producers with the opportunity to sell LNG gas overseas at 6X domestic prices (conservatively). In this situation, coupled with low storage levels, domestic natural gas prices would increase exponentially.
Production Hitting a Ceiling
Now we turn our attention to the supply piece of the equation. With producers becoming more fiscally minded, labor and material costs rising, investment in carbon being unpopular, and new pipelines being delayed due to politics. Production is expected to have only a minimal increase in 2023 and beyond.
In Summary
There is a very real risk that prices could move higher this winter/spring due to stagnant supply and increasing demand. With the market at 12-month lows, right now is a great opportunity to take risk off the table and purchase all or a portion of their energy supply costs.