Key Drivers
- Will January through March temperatures in the Midwest and Northeast trend warm or cold?
- Will LNG deliveries to Europe and Asia continue at a near record pace for all of 2022?
- How much natural gas production in the Southwest is lost to winter freeze-offs?
- Will natural gas producers increase drilling in 2022 above 2020 and 2021 levels?
Commentary
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December NYMEX settled at $5.40/MMBTU, but January settled at a much lower price of $4.02/MMBTU. A very warm December in the Midwest & Northeast helped push wholesale prices down throughout much of December. Prices went as low as $3.50/MMBTU before rebounding and settling higher at the end of the month at $4.02/MMBTU. In the first few days of January wholesale daily prices have trended lower than the $4.02/MMBTU settlement. We’ve seen well-head prices trading anywhere from $3.63/MMBTU to as high as $3.88/MMBTU. With the colder January temperatures finally arriving, price trends will likely trade closer to the $4.00/MMBTU price point for a week or two. If the Midwest and Northeast temperatures trend warmer than normal at some point later this winter, prices could drop closer to the $3.50/MMBTU price point. For the rest of winter prices will probably act pretty typical : prices will strengthen as temperatures get colder and will soften as temperatures move back above normal. In a La Nino winter like we are experiencing we will often see more periods of warmer than normal temperatures followed by high pressure system blocking over Alaska and Greenland buckling the jet stream and sending much colder temperatures into the United States. Sometimes the cold will last for extended periods and sometimes will include extreme Polar Vortex type temperatures.
It appears that $3.50/MMBTU is where natural gas producers really want prices to be. By the end of January natural gas storage levels in the U.S will be trailing the storage numbers at this same time last winter. However, not by not at an alarming rate. The big questions now are 1. How close to normal temperatures will winter be through March and into April for the Midwest and northeast 2. Will LNG producers keep sending 12-13 bcf/day to Europe and Asia throughout 2022 and 3. Will natural gas and oil producers start drilling at a much faster pace than we have seen the past two years? Early indications appear to show that producers are looking to increase drilling more in 2022 than the previous couple of years. If this turns out to be true, by later in 2022 fresh natural gas supplies could hit the market and help the tight supply situation we’re currently experiencing. Unless something unexpected happens domestically or globally to either add more natural gas supply to the current supply/demand tight balance or additional demand, natural gas prices are expected to stay in a $3.25/MMBTU to $4.00/MMBTU trading range for much of 2022.
After having such a warm December to start the winter we don’t expect to see $5.00 or $6.00 natural gas prices again for quite a while, unless something really unforeseen occurs like a strong Polar Vortex event. For consumers with contract renewals coming up in 2022 we advise talking with us now to develop a procurement strategy well ahead of time. We can show you a variety of electric and natural gas quotes now and then help keep watch on market price trends and on quoted offers as time moves closer to your renewal date. We certainly don’t want you to miss an attractive buying opportunity should it exist months before the renewal date. Plus, we want to explore with you programs like Peak Load Management that can help shave electric costs off your bill as well as the PJM Demand Response program that can actually help your business earn annual income dollars. Too many consumers wait until right at contract renewal time to look at new price offers and be forced to take what the wholesale market is offering at the time. We do all the price tracking and monitoring so we do what we do best and you do what you do best. We then notify you with updated offers when the best opportunities exist. We work hard to be the business energy partner you never knew you needed.