Natural Gas Neutral/Bearish | Crude Oil Neutral | Economy Bearish | Weather Neutral/Bearish |
Weekly Natural Gas Report
The Energy Information Administration (EIA) reported an injection of 103 Bcf into underground storage for the week ending September 23. Inventories are 2,977 Bcf, which is 6% less than the same period last year and 9% lower than the 5-year average. For the week ending September 20, Baker Hughes reported 160 gas-directed rigs, down 2 from last week. Oil-directed rigs were at 602, up (3) for the same period.
Weekly Power Report
Forward prices were down week over week in all regions besides CAISO which saw a small 1% increase. Forward prices in ERCOT fell sharpest week over week between 5.6% - 5.9%.
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 one of the hottest summers on record in the US, natural gas storage levels have continued to brush up against historically low levels. Since natural gas is used as the primary generation source for power, these low levels of storage indicate natural gas and power prices will be sensitive to forecasts for colder than normal weather, due to the increased use as the primary source for both heating and electric generation.
Natural Gas Exports are Soaring
In less than 10 years, the United States is expected to go from zero LNG exports to the top exporter in the world. The next phase of projects is currently under construction, and by 2025 the U.S. will be exporting an extra 6 Bcf/ day as improvements in methods have decreased construction times. Currently, production is not forecast to match the gains in exports and higher U.S. prices is likely the only thing to motivate producers to increase supply.
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 continue to move higher this fall/winter 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.