Natural Gas Prices--The Calm Before the Storm?

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Editorial by Geoffrey Lakings for Industrial Info Resources (Sugar Land, Texas)--As the calendar flips from March to April, HH natty prices find themselves cratering back to their lows of $2 as weather models shifted, re-shifted and shift yet again.



As we mostly put winter behind us as spring is flowering in some of the states. Bluebonnets in the Texas countryside.

• Reuters: US natgas futures fall 3% to 30-month low on mild weather forecasts: U.S. natural gas futures fell about 3% on Tuesday to a 30-month low on rising output and mild weather forecasts that should allow utilities to start injecting gas into storage at the beginning of April.
  "A shift toward milder temperature expectations during recent days has contributed to much of the price weakness," analysts at energy consulting firm Ritterbusch and Associates told customers in a note. "Add in a lift in production back toward a record pace ... and conditions have been ripe for this price slide."

So the question on most everybody's mind for stateside natty prices this spring into summer is what we discussed in Dr. Smith's University of Houston Energy Analysis class earlier this week. How much Supply(/Production) vs how much Demand(/Consumption)?



This will, in turn, influence how much is injected into inventories, which are already comfortably above their five-year average.

• Reuters: US natgas futures fall 3% to 30-month low on mild weather forecasts: Gas stockpiles were about 23% above their five-year average (2018-2022) during the week ended March 17 and were expected to end about 20% above normal during the colder-than-normal week ended March 24, according to federal data and analysts' estimates.

As most pundits are looking at this supposedly healthy inventory level with which we are exiting winter, along with seemingly strong production and, in turn, being quite bearish.

• Reuters: US natgas futures fall 3% to 30-month low on mild weather forecasts: Refinitiv said average gas output in the U.S. Lower 48 states rose to 98.5 bcfd so far in March from 98.1 bcfd in February. The monthly record is 99.9 bcfd in November 2022.

However, from a demand perspective we are already setting records with U.S. exports--especially LNG.

• Reuters: US natgas futures fall 3% to 30-month low on mild weather forecasts: The price decline came even though the amount of gas flowing to liquefied natural gas (LNG) export plants was on track to hit a monthly record high in March.

But before we know it, summer will be here with increasing power burn (see the records set last summer), though the EIA STEO is indicating that demand will be "off" from 2022 by roughly 2 Bcf/d.



So yes, the majority of the pundits looking at all of this "data being visualized" are not in the slightest surprised that all gas indexes--HH, TTF, JKM--are indeed way off from last summer's highs--with the Hub back at the aforementioned $2. But I feel it is but a matter of time before we see $4+ HH pricing this summer, as Europe and Asia will seek to "snap up cargoes" for their summer power burn, as well as to store for next winter. Leaving us pondering.
That we still do not have a good handle on where China's inventories truly are. They seem healthy, but are they?
And, we as mentioned we know stateside we had some of our highest power burn ever with unprecedented heat last summer, do we really believe this will not be the case this summer?
And it seems like Europe will deal with both heat and drought this summer, likely to drive their power burn.

Though Moody's, however, sees prices only slightly above $3.

• Moody's lowered its outlook for unregulated utilities and power generation companies to stable from positive, citing the lower gas prices. The firm said it now expects gas prices to average slightly more than $3/MMBtu in 2023, "down sharply from our previous expectations that gas prices would remain above $4.50/MMBtu."Mar 14, 2023

Also, Europe is trying to put in place a new "pricing mechanism" to "limit gas spikes."

• EU countries have agreed on a market correction mechanism which will limit episodes of extraordinarily high gas prices in the EU and thus reduce the impact of price hikes on citizens and the economy. A price ceiling for gas transactions will be applied when and if gas prices reach exceptional levels.

Though we are already seeing price increases this past March for TTF.

• EUROPE GAS-Prices rise on snowfall, forecasts for LNG import disruptions

And, for the future we are still watching "gas capacity" being built out in Europe.

• OilPrice Intel: Europe Still Adds Gas Generation Capacity: With 15 GW of coal, lignite, and nuclear capacity being decommissioned this year, European countries still ramp up their gas generation capacity with 10 GW of combined and open-cycle gas plants being currently constructed, led by Greece, Italy and Poland.

Not to mention industrial consumption is increasing on the "price drop" as Dr. Smith says the cure for lower prices is lower prices.

• European Industry Boosts Natural Gas Consumption As Prices Drop: As natural gas prices in Europe fell to a 20-month low, industries are switching back to using gas in a tentative sign that European industrial gas demand is rising. The front-month futures at the TTF hub, the benchmark for Europe's gas trading, slumped earlier this week to below 40 euros ($43.52) per megawatt-hour (MWh), the lowest price since July 2021, as temperatures were rising, wind power generation was strong, LNG supply ample, and gas inventories way above the average for the end of the winter. The refining industry, where the switch from fuel oil to natural gas is more easily done, is already showing signs of higher gas demand.

So just like German Chancellor Olaf says about "the banking crisis and Deutsche Bank" nothing to see here, all is good as was written in IIR's Market Scorecard this week.


I hold a vastly different opinion and feel we are but in the calm before a "whirlwind of a natty price storm"

Therefore, let IIR Energy's Dedicated Market Research place the world at your fingertips. Tomorrow's News Today. Ask us! We have Answers!

As your feedback is very important to us. Please let us know if we may provide additional color or answer any other market questions you may have by replying to this note.

Additional IIR Resources:

• IIR Team Email: iirteam@iirenergy.com
• Latest IIR Crude & Products Market Scorecard


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