Key Wholesale Market Drivers
- Strong U.S. Natural gas production
- Full natural gas storage level heading into winter
- Colder than normal November followed by expected warmer than normal December
- Colder than normal January – February 2020 expected
- When will the natural gas supply versus natural gas demand gap start to lessen?
Commentary
November 2019 was nearly a repeat of November 2018 in regards to the temperatures being below normal through much of the country. Similar to December 2018, December 2019 is shaping up to be warmer than normal, but not to the extreme as last December. Natural gas NYMEX is not shadowing last year as NYMEX prices dropped last week to about $2.30/MMBTU compared to prices a year ago at this time of around $4.70/MMBTU. This wide disparity in the two prices is primarily due to strong U.S. natural gas production along with gas storage levels being extremely full this year. Forecasters are still expecting January 2020 to be slightly colder than normal and February the coldest month of the year.
Since November 2017 we have seen U.S. natural gas production grow over 17.9 bcf/day. This growth in production coupled with low well-head prices has led to the rapid growth of the LNG export business sector as well as the speed in which coal fired electric plants have been retired with many more planned to be retired. With more LNG terminals coming online and more coal plants being retired natural gas demand will continue to grow.
While the growth of U.S. natural gas production has outpaced the growth of natural gas demand in 2019, it is believed that the gap will close modestly by the end of winter. The gap could close even further during the summer 2020 if we see production levels stop growing or even fall due to the rapid decline of natural gas drilling rigs in 2019. The natural gas active drilling rig count dropped by nearly 35% in 2019 as investors didn’t like the ROI. While production techniques and efficiencies have greatly improved production quantities per well, whereupon more can be produced for less, any let up of supply coupled with a warmer than normal summer of 2020 and growing demand could really make things interesting for natural gas NYMEX prices and since the two run in very close relationship electric wholesale prices too.