- Highest U.S. Natural gas production since 2019
- Lower domestic energy demand in the Fall season
- Electric demand destruction in FL from Hurricane Ian
- Sizable U.S. natural gas storage deficit reduction expected in October
- End of Season storage will still likely trail 5 year storage average and 2021
- La Nino this coming winter for 3rd year in a row
- Weak Polar Vortex forming meaning some very cold winter weather at times for the eastern U.S.
After the run up in natural gas and electric prices the past year and a half energy consumers are ready to be optimistic about the direction of prices. From a June 2021 natural gas NYMEX settlement price of $2.984/MMBTU to the September 2022 NYMEX settlement price of $9.353/MMBTU it’s been more than a little stressful and painful on company’s bottom lines in comparison to original electric and natural gas budgets. We are very proud of the fact that well over 90% of RD Energy natural gas and electric clients have avoided this surge in energy prices and will avoid what awaits us this winter. Many business consumers around the U.S. both large and small were not prepared and have suffered greatly. Unfortunately their pain is not yet over. However, there are some bright spots of optimism on the horizon if we can just get through the coming winter.
From June 2021 when natural gas NYMEX settled at $2.984/MMBTU to September 2022 when NYMEX settled at $9.353/MMBTU we experienced the largest run up in natural gas and electric prices since 2008. The average NYMEX price for 2022 so far is averaging more than 50% higher than the year 2014 or the second highest price average in the past 10 years. The October 2022 settlement price settled at $6.868/MMBTU or $2.49/MMBTU lower the September settlement. When you look at our list of Key Drivers (above) the first 4 are the primary reasons for the recent plunge in prices. Basically we’re in the shoulder season of the year when demand for cooling is much lower and the demand of heating hasn’t started yet. At the same time U.S. production is hitting their highest levels since COVID 19. The final 3 key drivers are why we won’t likely see a total collapse in prices that those business consumers who haven’t locked in their electric and natural gas supply contracts for the winter are anxiously waiting to see. October temperature forecasts for the eastern 3rd of the country in fact is getting colder with added heating demand showing up in both short and long-term forecasts as colder Canadian air is forecasted to come in wave after wave this month. This is exactly how the La Nino weather pattern currently typically works and is the same weather pattern we have experienced the past two winters.
For any consumers needing to make buying decisions ahead of the coming winter, the next 30 days will be pivotal. Wholesale prices dropped $2.49/MMBTU over the past 30 days bringing down electric wholesale prices. However, there are a number of major factors and data points to monitor in the days and weeks ahead. Will temperatures in October in the Midwest and east continue to trend colder adding more heating demand? Will weekly storage injections be high enough to keep reducing the U.S. storage deficit versus both the past 5 year average and 2021? Will there be an announcement delaying the back in-service date of the large Freeport LNG facility or will it actually come back on in early November as planned? Will the “long” technical speculator traders who have been sitting on the sidelines mostly inactive the past year see a buying opportunity and short squeeze the market back up? As we write our newsletter on the morning of October 3rd the NYMEX market has broken through a key price support level and has dropped lower to the next level down. This could provide an excellent opportunity to fix all or a portion of your uncovered electric and natural gas supplies if you have supply contracts expiring in the upcoming months. As we’ve seen over the past year, price volatility in natural gas and electric prices will continue with surprises both good and bad awaiting us. Remember, having a procurement strategy is critical, but it’s also important to know how we define the term “strategy”. At RD Energy we define an energy procurement strategy as both watching and tracking energy data, market trends and key drivers as well as moving you outside your “comfort zone” to explore new and creative ways to procurement electric and natural gas methods like dollar cost averaging. If you have questions or would like to discuss your business energy procurement strategy in more detail, please contact us to set up an appointment.