Key Drivers

1. Slow erosion of natural gas storage surplus vs 5 year average
2. Excessive heat across much of the country weakens except in the south and southwest
3. Daily natural gas production remains strong now, but the wait is on for the 4^th Quarter downturn
4. LNG exports:  Will daily LNG demand pick up as winter approaches in Europe?
5. Will El Nino continue to gain strength and how will it affect winter weather here and abroad?

Commentary 

Since early June natural gas and electric prices have traded without much volatility, which is very unusual when it comes to energy commodities.  It’s very notable that even with the extreme heat through much of the U.S., natural gas and electric daily cash prices stayed calm  without the usual excessive price spike normally seen.  This obviously points to two things: natural gas production is strong enough to meet extra power generating demand, and wind/ solar generation was plentiful to help the supply and demand stay balanced.  The one thing that has been noticeable the past 5 weeks is that weekly storage injections have come in below expectations.  This means that the end of season storage surplus versus the 5 year average has shrunk some.  The surplus vs the 5 year average is expected to continue to shrink over the next few months.  It seems that for the past two months for every one reason energy prices could rise we have another reason for prices to fall.  This has kept the markets in a low volatility time when there’s nothing to get too excited about.  The U.S. EIA is still forecasting a strong drop in daily natural gas supply especially by the time Q4 2023 arrives with the expectation that prices will start their climb at that time as a direct affect. 

In a worst case scenario natural gas production does decline at the same time that LNG demand ramps up with both happening in Q4.  In addition, if we get an cold weather early in the fall and winter, prices will likely climb sharply.  However, it’s seldom we get a worst case scenario.  The opposite could occur meaning natural gas production doesn’t drop much, extra LNG demand doesn’t show up, we experience a warm fall and early winter and prices fall hard.  Of course we’ll probably have a mix of things happen for and against prices to rise and fall keeping prices trading calmly for a while.  The point is something unexpected has to happen and likely will happen eventually to help chart the course for pricing in Q4 and the first half of 2024. 

In the meantime we’ll work to stay ahead of electric and natural gas contract renewals for our clients.  We’ll keep watching for price dips and opportunities as well as for domestic and global events and market shifts that turns prices around quickly and unexpectedly.  Price volatility has been very low the past few months compared to 2022.  However, we know price volatility will return and that eventually something will trigger it’s arrival.  We just need to be ever diligent, prepared and in good shape with contract renewals so no one needs to panic or have knee jerk reactions.