Key Drivers

1. Natural gas storage levels are around 600 BCF lower than the end of winter last year; substantially increasing storage injection demand this spring and summer
2. Liquified natural gas exports has reached new record levels at 15+ bcf /day
3. Natural gas wholesale prices are $2.25/MMBTU higher now versus this time a year ago
4. 2025/2026 power prices have risen sharply due to much higher wholesale natural gas prices
5. Ohio businesses are facing dramatic increases in electric and natural gas spends due to upstream transmission rate increases at TC Energy (April/natural gas) and PJM (June/electric)

Commentary

March 2025 natural gas NYMEX settled in late February at $3.906/MMBTU vs a March 2024 NYMEX settlement of $1.615/MMBTU.  Clearly, natural gas prices have experienced a significant increase this winter compared to last winter that was extremely warm. The big question we all want to know now is, “where will natural gas and electric prices will go from here?”.  While we are entering a time of warmer weather in March and a period of time when natural gas prices are likely to pullback off such lofty levels resulting from the bitter cold days experienced in January and February, quite a number of bullish factors remain:

1. Natural gas storage levels by the end of March will likely be near 600 bcf lower versus levels than a year ago.  Plus, the large storage surplus of a year ago has flipped to be a sizeable storage deficit versus the past 5 year average
2. Increased Demand: Total U.S. natural gas demand, encompassing domestic consumption and exports, is projected to rise by approximately 3% (3.2 billion cubic feet per day) in 2025, outpacing supply growth.
3. Expansion of LNG Exports: The U.S. is anticipated to boost its liquefied natural gas (LNG) exports by about 15% in 2025 above current maximum historical levels.
4. Supply Constraints: Natural gas production is expected to increase by only 1.4 billion cubic feet per day in 2025, which is insufficient to meet the rising demand, leading to tighter market conditions.
5. Weather-Related Factors: Seasonal weather events, including tropical storms and hurricanes, can disrupt natural gas production by forcing refineries to reduce or halt operations, thereby affecting supply.
6. Tariffs and Trade Policies: New tariffs and trade policies may increase costs for natural gas imports and exports, influencing domestic prices.
7. Global Market Dynamics: Rising global demand for natural gas, particularly in Europe and Asia, can lead to increased U.S. exports, thereby reducing domestic supply and driving up prices.

Further exacerbating the situation, TC Energy has announced an increase in natural gas rates effective April 1, 2025. This adjustment is anticipated to elevate consumer natural gas costs, adding financial pressure on the energy spend of businesses throughout much of Ohio.  Moreover, as we’ve talked about since last August in our RD Energy Stay Current newsletters and podcasts, beginning June 2025, electricity costs are set to rise, driven by much higher PJM Capacity costs climbing nearly 10X higher than current PJM capacity rates in order to incentivize the investment of power infrastructure to meet the exponential power demand growth forecasted over the next 2-10 years. Collectively, all of these developments suggest that the year of 2025 as well as 2026 could usher in a tsunami of higher energy costs for business consumers, necessitating strategic energy procurement planning and the adjusting of company budgets as well as the intense search for ways to mitigate the impact.  Our goal at RD Energy is to help our clients understand the energy issues, the cost impact on company budgets, and to work together to figure out ways to best lower the impact of the higher natural gas and electric costs some that have already arrived with the cold winter with more to come in April and June.