Stay Current With RD Energy: August 2020

Stay Current With RD Energy: August 2020

 

Key Drivers

  1. On 8/3/2020 Natural gas NYMEX jumped around $.32/MMBTU
  2. 2021 NYMEX 12 month strip trading at about $1.00/MMBTU higher
  3. than 2019 settlements so far
  4. January 2020 NG NYMEX closed at $2.158/MMBTU.  January 2021 is
    trading at $3.023/MMBTU
  5. Weather temperature forecasts revised up warmer than normal for next few weeks
  6. Natural gas production in the U.S dips
  7. LNG activity shows an increase as global demand starts to slowly recover and September LNG shipment cancellations drop

Commentary

 Many customers continue to watch for a natural gas and electric price crash thinking that COVID-19 and lower oil prices will make it happen.  In the very short-term, prices did drop.  The lowest prices of the year were in June and early July.  Once the extended hot weather of July arrived prices rebounded with the new demand for natural gas fueled electric generation.  New forecasts came in Monday showing that  a short cooler week of weather in the Midwest will be followed by above normal temperatures for a few weeks.  The changing forecasts has propped up prices that many thought were just about to drop with the cooler weather.

The abnormally high increase in prices today seems partly to be driven by unscheduled natural gas pipeline maintenance on a Texas pipeline that is reducing natural gas supplies and causing Force Majeure declarations.  Also to blame is lower daily natural gas production volume reports showing an unexpected drop in natural gas volumes being produced along with some surprising LNG activity after a 3 week severe reduction due to low global demand.  September LNG shipments to Asia and Europe are forecasted to be 50% higher in September than July and August as the global economies begin to recover from the COVID-19 shut down.  Natural gas NYMEX price trends is definitely up versus both last year and the first half of 2020.  Last month we showed numbers from the U.S. EIA forecasting prices to be up substantially by the end of the year and early 2021 as demand rises faster than supply.  Over the next two to three months, LNG exports are likely to recover, significantly increasing US demand. At the same time, production is likely to remain deeply depressed for the remainder of 2020 and much of 2021. Depending in part on winter weather, the winter-month contracts could easily rise by another 25-50 cents, with even steeper increases further out on the future.

Many customers have taken advantage of current prices, but others are still waiting for the big price plunge.  Our fear is these businesses will keep sitting on the sidelines while their opportunity to maintain or even lower their 2021 annual costs versus 2020 costs disappear.  Working together with good data and a good strategy will help our clients manage expectations along with their annual energy budgets.

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