Key Drivers
- Revised cooler April temperature outlooks add much more natural gas consumption
- End of 2022 winter NG storage is at a 19.7% deficit vs 2021 and 14.7 deficit vs the past 5 year average
- Near record level of LNG exports to Europe and Asia
- U.S. natural gas production is below pre-COVID 19 March 2020 levels
- Multiple LNG projects beginning construction adding up to 10 bcf/day export demand by 2025
Commentary
April 2022 NYMEX settled close to 107% higher than April 2021 at $5.336/MMBTU. May 2022 natural gas NYMEX is currently trading even higher at $6.03/MMBTU. Natural gas futures are trading above $6.00/MMBTU from May 2022 through February 2023. What is happening? Will prices come back down? Since June 2021 natural gas and electric prices have risen exponentially as global and domestic demand for natural gas has exceeded supply. As the U.S oil and natural gas rig count continues to ramp up with these extremely high prices as a catalyst, the ramp up is still well below pre-COVID 19 rig count levels. Production levels are up from the winter when well freeze-offs lowers production helped lower production capability. However, the colder than normal April is not favoring a strong start to the April storage injection season. Natural gas storage is currently 19.7% below 2021 levels and 14.7 below the past five year storage level average.
There is a lot of finger pointing trying to find blame as to why oil and natural gas production isn’t where we want it to be now. The fact is, U.S. oil and natural gas production came to a quick halt at the beginning of the global pandemic. There was a sudden loss of energy usage demand, faster than any time in history. Prices plummeted, production slowed dramatically, and new drilling stopped. Demand for oil and natural gas came back very quickly in 2021. However, U.S. oil and natural gas producers decided to let prices rise and use the windfall profit from extraordinary high income and extremely low expenditures on new drilling investment to strengthen their balance sheets, pay down debt, pay large bonuses and pay extra high dividends to investors. Exxon for example just announced 2022 1st quarter profits the highest since 2008. Exxon and three other large oil companies collectively spent $44 billion in 2021 on stock buy backs, dividends and payouts and plan another $32 billion in 2022 instead of investing in strong drilling programs. While the rig count is currently up 34% over 2021 average, the total number of rigs is well below historical numbers when NYMEX prices were this high in the past. It could be said the U.S. oil and natural gas producers have the American public right where they want them; blaming everyone else for these extremely high energy prices and gasoline at the pumps while raking in massive windfall profits and paying out dividends and bonuses while at the same time having the American consumer begging them to be the hero and produce more so as to lower gasoline prices at the pumps. When U.S. consumers large and small are paying record energy prices and inflation is soaring, a large percentage due to the highest energy prices in years, corporate profit gouging, profiteering and very little investment in new drilling needs to be called out by everyone.
| GAS Strip | Today’s Curve | 3/25/2022 | delta | Delta |
| Cal 22(May-Dec) | $ 5.84 | $ 5.63 | $ 0.21 | 3.6% |
| Cal 23 | $ 4.52 | $ 4.36 | $ 0.16 | 3.5% |
| Cal 24 | $ 3.81 | $ 3.63 | $ 0.18 | 4.7% |
| Cal 25 | $ 3.81 | $ 3.48 | $ 0.33 | 8.7% |
| Cal 26 | $ 3.88 | $ 3.48 | $ 0.40 | 10.3% |
The chart above shows 2 very important facts:
1. The calendar 2022 and 2023 natural gas strips were much higher than 2024, 2025 and 2026 strip pricing.
2. Calendar year 2025 and 2026 annual strip prices are climbing at a much more accelerated pace than the other three year annual strip prices (see green highlights).
While it’s no surprise 2022 and 2023 strip prices are higher than the future three years, it’s very surprising that calendar year 2025 & 2026 prices are rising at a much faster pace. In fact, the 2026 annual strip has risen by $.85/MMBTU this year alone.
This is happening primarily for two reasons:
1. 2024, 2025, & 2026 have been at remarkably low prices vs 2022 & 2023 pricing for a long time and has finally caught the eye of fundamental and technical traders as they fix long term prices to include these extremely attractive prices
2. More LNG export facilities are beginning construction to be completed in 2025 & 2026 adding as much as 10 bcf of new LNG export capacity to Europe and Asia.
Natural gas production hasn’t yet been able to keep up the growing pace of demand. While new gas supplies will likely arrive in the market in late 2022 and the first half of 2023 the question that remains unanswered is if production can ramp up fast enough to keep pace with mounting global demand especially from Europe who is trying not to be dependent on Russia for their natural gas requirements. We still feel that a wholesale price dip is coming, but the question is when. Will it be technically driven by traders who push prices back down for a while or will it be U.S. recession driven as energy demand drops due to a slower economy or both?
RD Energy is unmatched at providing the expertise, coaching and focus needed for electric and natural gas business consumers large and small looking to explore and participate in programs and strategies designed to lessen and lower the impact of these budget busting energy prices. Whether your electric and natural gas supply contract is up in a few months or inside of two years we should have a strategy session soon to get all the current usage data and supplier contract status in front of us so our coaching and advise can be most effective. There’s a growing urgency for business consumers large and small to look for ways to soften the blow and lessen the impact of these higher energy prices. Many business consumers many not yet realize that discussions and planning can be done months and years ahead of their current supply contract expirations for new contracts to start as their current deals end. Many don’t realize that they don’t have to sit and do nothing while prices continue their climb upward. These higher prices will greatly impact your business, your product cost, your energy budgets and your bottom line. Doing nothing should not even be an option. Not talking about it shouldn’t even be an option. Let’s get you on our calendar in April to discuss electric and natural gas supply strategies before AC season begins across the U.S. and energy demand soars even higher.