Key Wholesale Energy Market Drivers
- Natural Gas prices in Europe and Asian are trading 7X greater than U.S.
- U.S. Natural Gas storage deficit versus 2020 is at 500 BCF
- October 2021 will likely be the warmest October on record in the U.S. adding extra cooling demand
Commentary
The average natural gas NYMEX price for all of 2020 was $2.077/MMBTU. Natural gas prices for October 2021 delivery closed at $5.841/MMBTU. Prices in Europe and Asia are at $34/MMBTU and rising. From the end of August to the end of September 2021 natural gas prices increased from $4.37/MMBTU to $5.841/MMBTU even though weather fundamentals were much weaker by being a shoulder season month.
Here’s a quick example of how the price jump effects consumer prices: In October 2020 consumers buying natural gas from Columbia Gas of Ohio paid a variable rate of $.32/ccf. The October 2021 variable rate is $.754/ccf. The past few years have lulled some businesses into believing that variable rates are the way to buy instead of fixed rates due to the lowest NYMEX prices experienced over the past 5 years versus the 10+ years previous. Their day of reckoning has arrived.
Will natural gas and electric prices rise further this winter? The commodity markets are experiencing large swings in price many days each week. Some days prices rise and fall as much at $.30 – $.50/MMBTU. The trend still appears to be up. As long as natural gas prices in Europe and Asia stay elevated above $20/MMBTU (currently $34/MMBTU and still rising), the U.S. natural gas producers will be shipping every drop of LNG physically possible there to reap the windfall financial reward. This takes a lot of U.S. natural gas production out of the U.S. to oversees markets and out of the supply available for U.S. consumers, therefore raising natural gas and electric prices here. More LNG exporting terminals are coming on soon so even more LNG can be shipped. U.S. consumers need to pay very close attention to winter forecasts and plan ahead. Wholesale commodity markets are already high and likely to go higher. An early cold winter in November and December could cause prices to jump even faster and dramatically.
The warmest winters experienced in the U.S are when the weather condition called an El Nino is present in the Pacific Ocean. This winter will not be an El Nino winter. Instead, the Pacific Ocean waters are actually cooling instead of warming, pushing weather models towards the opposite forecast of an El Nino called a La Nino. The U.S. experienced a weak La Nino last winter as well. During a La Nino there tends to be more northern blocking of the Jet Stream over Alaska and/or Greenland as well as give rise to the chances of stratospheric warming. This often results in the buckling of the Jet Stream allowing cold Canadian air to flow into the Eastern U.S. It also increases the chances for a Polar Vortex event to occur like last February. Actually, a variety of weather models are forecasting a high percentage likelihood that there will be stratospheric warming developing in November. If it occurs, the cold air could start arriving in mid-to late November with the coldest Polar Air arriving in December. If this happens it wouldn’t likely be as cold as February 2021 due to solar calendar timing, but it would be an early cold start to winter that could push prices up rapidly. The major point is that prices are already at the highest point since January 2009, they are extremely volatile and will likely be even more volatile as winter arrives.
As an Energy Broker will work closely with our business clients to make sure they understand what is happening in the natural gas and electric commodity wholesale markets along with how it effects their prices. Together we then build a buying strategy that best protects their energy budgets, energy spend and bottom line. While these newsletters we write are helpful we believe it’s our one-on-one discussions and planning ahead that provides them the best results year after year. Whether it’s our ability to shop for the lowest custom pricing from our strong portfolio of electric and natural gas suppliers or helping them participate in Peak Load Management and/or Demand Response programs, together we plan ahead to lessen the impact of widely volatile price swings like the U.S. is experiencing. Please call us @ 740-321-1075 if you have questions, concerns on what effect these extremely high commodity prices will have on your business or would just like to get more information about us. We look forward to hearing from you.