Natural Gas Bullish | Crude Oil Bullish | Economy Neutral/Bearish | Weather Bullish |
Weekly Natural Gas Report
The Energy Information Administration (EIA) reported an injection of 92 Bcf into underground storage for the week ending June 10. Inventories are 2,095 Bcf, which is 14% less than the same period last year and 13% lower than the 5-year average. For the week ending June 2, Baker Hughes reported 151 gas-directed rigs, unchanged from the prior week. Oil-directed rigs were at 580 for the same period, up 6 rigs from the prior week.
Weekly Power Report
Forward prices were down sharply in ERCOT, between 12.3 and 12.6%. CAISO also saw a downswing in prices, ranging from 6.2 to 6.7%. All other regions stayed consistent with previous weeks prices besides NEISO, which saw prices rise 6.2%.
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 Storage is Near 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. After numerous cold fronts moving through the country this past winter, natural gas storage levels brushed up against the lowest levels in 5 years and continue to be well below the 5-year average. Since natural gas is used as the primary generation source for power, these below-average numbers signal prices will be sensitive to forecasts for hotter weather, aka additional cooling demand, this summer.
Production is Below Forecasted
Another piece to the supply part of the natural gas puzzle is production. Analysts and industry experts must try to answer the question: As everyone flips on their A/C this summer, will we produce enough natural gas to meet electricity demand and still be able to put enough in storage to meet heat demand next winter? Production numbers have been coming in below estimated levels as temperatures continue to warm nationwide, so production is currently another bullish factor for gas.
Without Russian Gas - Prices Could Explode
Now we turn our focus to examine demand through a global lens. Russia’s invasion of Ukraine highlights just how influential Russia is to the global energy economy. Russia is the second-largest producer of natural gas globally, and accounts for 40% of Europe’s natural gas supply.
As of this writing, several European countries have stopped importing natural gas from Russia, but others are unable to do so without suffering catastrophic consequences themselves.
Which European Countries Depend on Russia Gas?
The chart below shows the % of gas supply from Russia in selected EU countries (2020)
Should Russia stop all exports, European countries would be forced to source gas elsewhere, and and would place the United States as the top new supplier. This would provide U.S. producers with the opportunity to sell their gas overseas at 10X domestic prices (conservatively). In that scenario, coupled with low storage levels, domestic natural gas prices would increase exponentially.
In Summary
While we may see some brief dips, there is a very real risk that prices break records this summer due to supply constraints, and demand, both domestic and global. It is in every customer’s best interest to protect themselves by fixing all, or part, of their energy supply costs.