Key Drivers

1. Short-term warm and cold temperature swings keeping prices volatile
2. Long range weather models forecasting a deepening NOA (cold December)
3. Increasing prices in Europe as winter arrives
4. Freeport LNG facility coming back online in December
5. Strong increase in NG production September – November

Commentary

Future price direction for both the natural gas and electric wholesale markets has never been more difficult to predict.  Just look at the electric price target graph of a current client (below).  Since May prices have been on a very wild roller coaster.  In 6 short months prices have risen to new historical peak levels and then fallen sharply soon after.  This is very indicative of a very tightly balanced U.S and global natural gas supply and demand.  When global supply and demand is so tightly balanced it doesn’t take much of a shift in one or the other to push prices up and down like we’ve seen this past summer and Fall.  As we closely watch natural gas and electric price trends for our clients having a tree top view of price peaks and valleys over time provides us numerous opportunities to buy energy supply contracts at an attractive time rather than when a supply contract is near expiration.  If you don’t have a tool like this helping point to price opportunities or someone watching it for you like we do how do you make a good buying decision?

As we enter December what is concerning to us is that even with a substantial rise in natural gas production the past three months along with much lower than normal LNG exports prices are already at the elevated high levels they are currently.  After such a warm September and October coupled with strong natural gas production and weak LNG exports, natural gas storage deficits versus a year ago were caught up.  We’re still entering winter 400 bcf below maximum storage capacity like we did last year, but 3.6 TCF of storage is still considered a very safe level entering winter.  There are several key questions to be answered in the coming weeks and months.  European natural gas prices do influence U.S. prices.  European prices have risen about $8.00/MMBTU the past couple of weeks that historically translates into a 5% U.S. price correlation or $.40/MMBTU.  If European prices were to jump $40/MMBTU to levels seen earlier this year, U.S. prices could jump $2.00/MMBTU.  We also have to wonder what will happen when the Freeport LNG facility comes back online and its 2 bcf/day export capability expected to begin at least partially in mid-December and fully operational in January.  Will the U.S. suddenly be shipping 14 bcf/day to Europe and Asia by January?  This happening would be very bullish on natural gas, and therefore, electric prices.

Maybe the scariest development we’re closely monitoring is the rapid strengthening by a variety of weather models of a negative North Atlantic Oscillation (NOA).   This means that high pressure is building over Greenland, northern Canada and northern Alaska that builds polar jet stream blocking.  When this type of blocking over Greenland and Alaska occurs it essentially buckles the Polar Jet Stream allowing and pushing very cold air to enter the U.S.  While over the next week we’ll see temperatures fluctuating quite a bit warmer and colder day to day, it appears that beginning around December 8^th the Midwest and eastern U.S. could begin a 4-6 week cold weather pattern that strengthens as we move to the last half of December and first half of January.  While this event could and likely will change to some extent, this possibility and strengthening negative NOA cannot be ignored.  An event like this on top of everything else we’ve mentioned could really push up natural gas and electric prices this winter.  To provide hope to consumers any substantial rise in natural gas and electric prices in December and January could quickly abate if temperatures warms greatly in February or we have an early end to winter.

We write this newsletter to keep our clients informed.  It has never been more important to be energy smart and make timely decisions.  As we keep watch on prices and trends we’re always looking for new products and tools our clients can take advantage of so they don’t just buy electric and natural gas at more opportune times, but they can also reduce costs using a variety of value added possibilities.  If you received our newsletter and aren’t currently a RD Energy client, we invite you to contact us for a discussion on how we can help your business better manage your electric and natural gas spend.