RD Energy Stay Current Newsletter: October 2023

RD Energy Stay Current Newsletter: October 2023

Key Drivers

  1. Flip flopping Midwest temperature patterns
  2. LNG daily export demand
  3. Daily U.S. production volumes
  4. Technical traders selling NYMEX in greater numbers than buying NYMEX
  5. Rising oil prices could eventually help support natural gas and power prices
  6. High U.S. natural gas storage level

 

 

Commentary

The U.S. is definitely in a moderate El Nino weather pattern that will likely continue through the 2023/2024 winter.  An El Nino normally effects the Midwest with drier than normal conditions along with fluctuating temperature patterns.  It will be very interesting, and of course, very important for natural gas and electric prices to see how the winter temperatures play out not only in the Midwest, but throughout the U.S.  There are a lot of weather models in existence today and it seems that the consensus is that while the Midwest will see a colder than normal November – January time period and above normal February & March, the southern U.S. will see very below normal temperatures and wetter than normal patterns throughout winter with a number of storms moving from the south up the east coast and developing into a number of Nor’easters.  Meanwhile the most northern tier of the U.S. and Canada will be dry and above normal through much of the winter.  It’s also going to be very important in relation to U.S. natural gas prices how cold or not it gets in Europe since how much LNG from the U.S. will be needed hangs in the balance.  It is expected that since temperatures in northern Canada are now and likely will stay above normal much of the winter the Polar Vortex will be weak and more easily to displace south into the U.S.

Natural gas storage levels will likely be 3800 bcf by the end of the summer injection season.  This is a very healthy number and is about 200 bcf above the volume heading into last winter and about 200 bcf below peak storage capability.  There are really no fears that we won’t have enough natural to meet U.S. winter demand this year.  The question comes in about daily U.S. daily production numbers.  Total U.S. natural gas is currently at 102 bcf/day.  It’s been around this 102 bcf/day number for a while now.  Since U.S. natural gas producers have slowed drilling activity throughout 2023 to put upward pressure on prices, a very close eye is being kept for either natural gas growth stagnation or an actual drop in daily production numbers.  While we have bearish fundamentals this week with above average temperatures, stagnant LNG exports deliveries at around 12 bcf/day and adequate natural gas production to more than meet demand including storage injections, how will prices be affected if LNG exports jump 2 bcf/day later this month, some heat load gas demand shows up at the same time daily natural gas production show no signs of strengthening and actually dips?  U.S. natural gas producers appear to be choking back production by slowing drilling to push prices up.  They could easily choke more off at the wellhead to provide a catalyst for upward prices.

Fortunately, we have the vast majority of our clients locked into favorable electric and natural gas prices for the next year or more.  For those businesses that aren’t completely hedged or locked in with a contract renewal in the Spring,  do you want to get your priced fixed in the shoulder season when conditions are definitely in your favor?  Or wait until late winter when we don’t know if conditions will be favorable or not.  In Ohio you just don’t know what kind of winter we will have.  For those businesses with electric and natural gas supply contracts up for renewal later in 2024, while of course you can get it locked up now, time is on your side.  We can benchmark a price now to see what a renewal looks like and for those with electric renewal or large industrial natural gas renewals we could buy a portion of it now and more next year at a opportune time for a dollar cost averaging approach.  Of course, we could just wait and get it all locked up next year.   You don’t have to try and find that one magic point in time to buy all your electric supply for the next few years.  We’re always happy to talk to every client about the procurement strategy that works best for them.

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