Key Wholesale Energy Market Drivers
- Natural gas U.S. storage deficit continues to grow week after week
- Hurricane Ida plows through Gulf area shutting down production
- Onshore processing plants possibly lose power for weeks
- Will U.S. natural gas storage deficit grow beyond expected 500 bcf shortfall
- Electric cooling degree day drops substantially beginning Sept in high power consuming NE
Hurricane Ida staggered the energy markets with quite the punch, but achieved no knockout. Nearly all Gulf platforms were temporarily shut down as Ida passed through, but crews are already assessing damage. The bigger issue is the onshore processing plants losing power, potentially for weeks, slowing the return of natural gas supplies from the Gulf. The length of time the power to the processing plants is off and the damage assessments of both the drilling platforms and processing plants are key factors in resuming full natural gas production. The outcome of these assessments will directly effect natural gas, and therefore, electric prices. It’s also important to note that the majority of LNG export terminals were outside of the storm’s path and will be running full throttle soon keeping up that large portion of the demand for natural gas being shipped to Europe and Asia.
August natural gas settled in late July at $4.044/MMBTU. Throughout much of August wholesale prices traded between $3.81 – $3.98/MMBTU. Suddenly everything changed on Thursday August 26th when the U.S. EIA announced the weekly storage injection at only 29 bcf well below the forecasted 45 bcf. This low storage injection number triggered NYMEX prices to rise $.29/MMBTU after the announcement. As carryover to the low storage injection along with the strengthening Ida and it’s path through the production fields in the Gulf prices climbed and settled for the month at $4.37/MMBTU. One big question was after the $.50/MMBTU price rise Thursday and Friday would prices collapse early the next week. As of this writing on Tuesday 8/31 the NYMEX price is trading at $4.375/MMBTU. Prices haven’t collapsed yet.
For electric and natural gas business consumers the questions seem both obvious and yet difficult to answer until we know more over the next few days and weeks:
- Will natural gas prices retreat back to the $3.81 – $3.98/MMBTU range in the next few weeks or maybe go even lower?
- How quickly or how slowly will the processing plants be back in operation and natural gas is back in full production?
- What effect will the much cooler temperatures in the Midwest and Northeast have on gas and electric prices?
- What will natural gas storage injections be the final 8 weeks of the injection season and will the deficit keep growing beyond expectations?
It’s pretty safe to assume price volatility will stay high for natural gas and electric prices as we wait on answers to these questions. We expect to see storm recovery news coming out that will be both positive and negative with price swings related to the news. If we learn information we feel our customers need to know, we will publish a “Special Edition” of our RD Energy Stay Current newsletter some time in September.
We’ve published the RD Energy newsletter monthly since 2016. Numerous long-term clients asked us to write something on occasion to help them understand the price trends better in an effort to buy at the right time in the market rather than at renewal time only. Some asked us to be their energy language “interpreter”. To most consumers electric and natural gas is like a foreign language. How can they make strategic energy decisions if they don’t speak the language, don’t understand the key drivers of market trends and don’t have an “interpreter” helping them as a partner along the way. Over the years new clients told us that they mistakenly convinced themselves they were comfortable buying as they had been. In reality they were paralyzed into doing nothing different until we came along and opened their eyes. Being more enlightened made a huge difference in their confidence, their buying strategy and their lower cost results. If this sounds like you or your business’ approach to buying electric and natural gas, we hope you will contact us soon for an onsite or via phone discussion. Let’s work together to improve your energy learning curve, improve your buying strategy, achieve lower burner-tip costs and lower upside price risk.