Key Drivers

1. March 2023 forecasted to return to more normal and even below normal in the Midwest and Northeast
2. Signs of life at the Freeport LNG facility as volumes begin to slowly come back online
3. U.S producers slow drilling as natural gas and oil prices fall after raking in record breaking 2022 profits

Commentary

The enormous plunge in natural gas, and therefore, electric prices have very much appeared to hit bottom last Tuesday when prices found the 18 month low point of $2.073/MMBTU.  Over the last week natural gas price have gone up about 26% mostly due to a slight shift in supply and demand fundamental news which is favoring the demand side for a change.  NYMEX prices are still under $3.00/MMBTU so we definitely can’t say that we’ve entered a bullish trend.  However, having five positive price day closures in a row that we have not seen since last December could be the first early signal that we’ve hit bottom.  April trading is tracking back up to near $2.75/MMBTU.  What is being overlooked is the unique situation where NYMEX pricing by November 2023 is nearly a $1.00/MMBTU higher and next winter prices are trading over $4.00.  This demonstrates that while we may be experiencing a short-term natural gas glut due to the warm January and February, some supply and demand questions remain unanswered looking in the not too distant future.

This doesn’t mean any enormous price jump is coming, but it could mean that natural gas is in a more fair pricing position when looking at the fundamentals.  The fundamentals have certainly been bearish since very late December when the well above normal temperatures hit the Midwest and Northeast.  However, we are seeing three things very slightly shifting in the favor of demand: March temperatures forecasts in the Midwest and Northeast are heading in the direction of being more normal and actually colder than normal by mid-month, Freeport LNG is slowly coming back online and taking natural gas out of the domestic market to be shipped overseas, and U.S. natural gas producers are slowing down new drilling due to the low well-head prices.  It should be noted that natural gas and oil producers enjoyed record breaking profits in 2022 as prices hit record breaking levels.  Most producers are on much more financially solid footing after reducing past drilling debt as a result of this record profit and are now in a much better financial position to throttle back production to keep prices up and not be cash strapped.

US Storage Update
On February 20^th the end of winter season storage volume expectation was 1850 bcf, however, by Monday February 27th  the number had dropped by 50 bcf to 1800 bcf due to the colder March forecast shift. This explains the price jump from a week ago.  January and February dramatically changed the end of winter natural gas storage level expectations. The December 13^th end of season storage volume expectation was only 1363 bcf or nearly 500 bcf lower than the 1850 bcf final number on February 20^th.

A Path Forward
Now that electric and natural gas prices have quite possibly bottomed out and appear to be heading back up, what do you do now?  What’s your strategy going forward?  What steps do you take to lessen the upside wholesale electric and natural gas price risk?  Last year clearly demonstrates the extreme range that energy commodity price volatility can take.  We’ve talked to business prospects who unfortunately had to renew electric and natural gas contracts in the middle of that 2022 volatility and were perplexed to say the least.  Shouldn’t the year 2022 be something we learn from and promise not to repeat?  Unfortunately it’s too easy to fall back into our old complacent “we’re comfortable with what we’re doing” ways.  The world is growing smaller and natural gas, and therefore, electric pricing is now affected by global as well as domestic issues.  Price volatility will likely remain high. 

It’s Time to Make A Plan
For an RD Energy client most of you understand the strategy and plan and know we’re a phone call or email away to ask your questions and that we continue to look at data and trends and make recommendations.  For those readers of our newsletter who are not a RD Energy client, please ask yourself who you look to for energy answers, guidance and energy information like data and price trends?  If you can’t answer the question, then you are missing a very valuable tool and resource in your procurement process.  Step one to making better energy procurement decisions is understand that while you may be an expert in your own business, you aren’t likely an energy expert.  Energy is a language of its own.  Electric and natural gas costs are often important pieces of an overall cost accounting budget.    We work extremely hard to be your energy expert, communicate that knowledge to our clients and use our in-depth knowledge to help each client shop for energy more effectively and timely as well as stay on the leading edge of energy data, pricing trends and strategic procurement.  We truly appreciate each and every client.  Want to be one?  Just contact us and let’s get started.