RD Energy Stay Current Newsletter: February 2023

RD Energy Stay Current Newsletter: February 2023

Key Drivers

  1. January temperatures averaged well above normal in the Midwest and Northeast
  2. February temperature forecasts are favoring a near repeat of January mild temperatures in Midwest and Northeast
  3. Fast growing year over year natural gas storage surplus
  4. Extremely high number of speculative traders selling NYMEX short pushing prices down



The vast majority of our RD Energy clients in 2022 were able to completely avoid the extreme price volatility by not needing to renew electric and natural gas supply contracts anytime throughout the year.  Prices peaked in September before softening as we moved toward New Year.  La Nino threw us a temperature and weather pattern curveball heading into January by pushing most of the cold weather into the western U.S. and allowing the southern jet stream to repeatedly send warm and wet weather into the Midwest and Northeast.  While we did get a few normal cold days, warmer weather ruled overall.  February is setting up to be much more of the same.  After the first few days of cold the Midwest and Northeast it is projected to return to above normal temperatures at least through mid-month.     The warm January has also resulted in flipping U.S. natural gas from a storage deficit position to a year over year storage surplus position.  Basically, due to the warm January and expected warm February in the Midwest and northeast winter prices have plunged to the point that they are lower than winter prices next year and the year after that.  This lower front month price situation is extremely rare and is already a head fake to many Buyers who are expecting all the future month pricing to be as low as the next couple of NYMEX trading months.  For example, while March 2023 is trading near $2.75/MMBTU, next winter November – March is trading at an average price of $4.10/MMBTU.  This price difference between the next few months versus long-term prices clearly demonstrates that the U.S. is experiencing a short-term natural gas glut due to the extreme warmth, but long-term the global supply and demand picture is still tight.

In fact, by the time the heat of summer and air conditioning load kicks in in May and June an assortment of fundamental factors could restore price volatility.  When will the China economy rebound from COVID 19 and once again begin consuming high levels natural gas?  When will the Freeport LNG plant come online adding 2 bcf/day of new natural gas demand?  Will a new round of coal power generation plant retirements grow demand for natural gas?   While it’s prudent to strategize and benefit from the recent wholesale plunge in prices whenever you can it’s also wise to be aware that things can change quickly.  We at RD Energy are watching wholesale price trends closely and reaching out to clients with renewals on the near and far horizon.  We highly encourage calling or emailing us with questions so you feel informed and so we can together build a renewal procurement plan.  We’d much rather start building plan a year or more in advance than wait.  The big 2 questions for every business early in 2023 is 1. Where do electric and natural gas prices go from here? 2. Should we be buying some or all of our energy requirements now or wait?  We have many clients that bought long-term electric and natural gas contracts in 2019, 2020 and 2021.  Those prices look exceptionally low and attractive now. Unfortunately, it will be very difficult and pretty much impossible to repeat these low prices so we need to start conversations to help manage expectations and company budgets.  Communication will be key and encouraged.  Again, please reach out to us with questions if we haven’t already reached out to you.

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