Key Drivers

1. U.S. Storage inventories are 302 bcf behind 2020 levels
2. European natural gas inventories ended the winter at a very concerning 11% below their 5 year average
3. European natural gas (NG) prices have shot up making U.S. LNG exports to Europe even more profitable
4. LNG export demand is currently 11.5 bcf/day vs 4.5 bcf/day during the summer of 2020
5. In April speculator NG NYMEX traders lowered their short positions as they wait for new data for “long” or “short” direction indicators
6. The U.S. EIA is forecasting higher NG spot prices through the rest of 2021 and 2022

Commentary 

When you read the key drivers it’s easy to view the market as overall bullish.  However, many large money “speculators” like hedge funds are in a wait and see posture before going “all in” in the bullish direction .  It would likely take a very cool summer and higher than expected natural gas production numbers to push prices down dramatically.  We know from watching natural gas over the past 4 decades that speculator trading can push prices to extreme in either direction and must be watched very closely.  Consumers need to be very careful not to get caught with expiring natural gas and electric contracts when speculators start buying long positions in mass, driving up prices.  Often times when speculators decide to go long it’s not a short-term play.  Meanwhile, U.S. storage inventories are running a little behind last year and more importantly European storage levels are 11% behind the past 5 year average after an extremely cold winter.  The European storage number is a very important number since U.S. LNG exports will most likely be counted on heavily to help get European inventories back to normal before next winter.  Many thought Russian imports would help Europe fill storage quicker, but so far the Russian pipeline company Gazprom has declined to increase Ukrainian pipeline capacity.  This in turn helped push NG trading prices up another 7% making U.S. LNG exports even more attractive to U.S companies.

A few things we do know.  While the average NYMEX price for natural gas ended the year 2020 near a historical low of $2.077/MMBTU, 2021 will likely end the year with an average price closer to $3.00/MMBTU or a nearly 50% increase.  We also know that oil drilling programs are being announced, but drilling only for natural gas isn’t receiving much interest.  While natural gas associated with oil programs will eventually come to market natural gas supply in the U.S. isn’t likely to grow like the boom years of 2018 and 2019.  We also know that natural gas demand for LNG exports as well as exports to Mexico is increasing versus last year.  Since natural gas is the number one fuel for electric generation in the U.S., how hot it gets in the Midwest and northeast is pivotal to the amount of natural gas consumed in meeting the extra AC demand.  Some are reporting that the current 302 bcf year over year storage deficit will actually grow to 600 bcf by the end of August.  If this occurs, natural gas prices will certainly be driven higher.

Speculator NYMEX traders are mostly short-term focused.  Their vision is mostly on the next trading month and to a little lesser extent the next 12 months.  This is a big reason we see 2022 and 2023 NYMEX prices selling at quite a discount than 2021 prices.  For example while June 2021 is trading at $2.95/MMBTU, June 2022 is trading at $2.548/MMBTU.  This fact is why 2 year to 4 year quotes are lower than 12 month quotes for both natural gas contracts and electric contracts.  We’re seeing some market trend forecasts that show that over the next 45 days the June 2021 NYMEX price will rise from it’s current $2.95/MMBTU price to somewhere between $3.07/MMBTU and $3.40/MMBTU.  This would quite possibly indicate that if your business has natural gas and electric contracts ending in either 2021 and 2022, putting off looking at new quotes might be harmful.

Please feel free to contact us at RD Energy to help you review your natural gas and electric contract position and to help you explore the best overall buying strategy going forward.  Our strong portfolio of energy suppliers bidding our your business to find the lowest price, our data and market trend analysis as well as our focus on Peak Load Management and Demand Response programs for businesses and schools that qualify to lower their energy spend even more are the primary parts of our overall strategy.  You won’t get operators at a far away phone bank when you call RD Energy.  You talk to our team members directly.  Please contact us with questions and for a business price and strategy review.