Key Wholesale Drivers

1. Shrinking year over year U.S. natural gas storage surplus
2. Higher year over year Canadian natural gas imports
3. Record breaking LNG exports
4. Extreme cold in Asia and Europe

Commentary

 As excited as we all were about leaving the year 2020,  natural gas and electric prices in 2021 could easily turn into one to remember and one to try and forget.  While wholesale price volatility has increased the past few months prices have still been very attractive.  But, don’t think that if your supply contract is only locked in for a year (give or take) that time is on your side and there’s nothing to worry about.  You really want to reconsider that plan.  The number of bullish factors aligning that could affect natural gas, and therefore electric prices, is worrisome:

1. If the U.S and European weather models are correct and we continue to have normal and even below normal temperatures in late January and February, the U.S. would leave the winter with a natural gas year over year storage deficit.  The higher the deficit the more problematic it will be to refill by next winter.
2. A colder than normal winter in both Asia and Europe has pushed spot prices there to near $30/MMBTU, 25% below normal storage levels at the end of December and increased demand for U.S LNG to record levels.
3. All weather models are watching the Polar Vortex split into two meaning that extreme cold air will push down into the northern hemisphere later in January and February.  It’s currently unknown how the U.S will be affected.
4. Will the U.S be able to produce enough gas to meet all the domestic and global demand and fill the natural gas storage deficit from this past winter this Spring and summer?

In 2019 the production in the U.S was able to produce enough to meet domestic demand, LNG and Mexico exports as well as fill storage.  In 2020 things got a little rocky.  Luckily for the U.S producers the U.S. left the winter of 2019/2020 with a year over year storage surplus of over 17%.  However, the surplus level dropped to around 6% by the beginning of the 2020/2021 winter season.  At the end of 2019 there were 793 active oil and natural gas drilling rigs.  By the end of 2020 there were 350.  U.S production is in decline.  Will the U.S producers be able to meet growing domestic demand, meet record LNG export sales and not only fill storage, but make up the storage deficit that is likely coming in the weeks ahead at the same time natural gas production continues to decline?

Please contact us at RD Energy if your facility would like to discuss any of the current market conditions, how they could affect your future pricing and how we can help you create and mange an overall stronger natural gas and electric buying strategy.  We help clients shop for the best price with a very strong portfolio of suppliers.  We also strengthen their strategy with value added programs like Peak Load Management, Demand Response, green supplies as well as help facilitate LED lighting projects and project financing.  To learn more about RD Energy please visit us at www.rd-energy.com.