Weather & Demand Outlook
This week, the US faces a mixed weather pattern. Expect a combination of showers, thunderstorms, and mild temperatures (60s–80s) across much of the country, with occasional hot spells in the southern states and Southwest deserts (80s–100s). As a result, natural gas demand is expected to remain light nationwide for the next seven days.
Natural Gas Market Highlights
- Storage Surplus:
- Natural gas storage continues to build, with five straight weeks of injections topping 100 Bcf. This has helped keep prices in check, with the July prompt month price dropping from $3.70 to $3.44 over the past week.
- Summer Demand Looms:
- As we enter the higher-demand summer months, storage injections are expected to slow due to increased air conditioning use.
- LNG Exports Remain Strong:
- Liquefied natural gas (LNG) exports are steady at just under 16 Bcf/day, and future export capacity is set to double by 2030. This could tighten supply and put upward pressure on prices in the coming years.
- Winter Pricing:
- While current prices for next winter are slightly lower than those of last week, they remain higher than those of last year, signaling a bullish longer-term outlook.
EIA: Natural Gas Storage Report
Power Market Trends
- PJM Futures:
- Electricity futures for PJM dipped at the front end of the curve due to mild weather and lower fuel costs. However, prices for 2026 and 2027 have risen, reflecting concerns about future supply and demand.
- Yearly Movements:
- Cal 2025 futures fell by $2.83/MWh over the past month, while Cal 2026 and 2027 increased by an average of $1.55/MWh.
- Medium- to long-term price increases are linked to rising risk premiums for mid-winter electricity and higher projected natural gas costs.
Market Risks & Recommendations
- Upside Price Risks:
- There is a continued risk of higher prices for 2026 due to growing demand and tightening reserve margins. Consider locking in recent price declines if you are risk-averse.
- Portfolio Strategy:
- To manage volatility, consider a portfolio approach. Passing through actual capacity costs (instead of fixed premiums) can help reduce unnecessary expenses. Large users may benefit from managed index solutions or hedging small blocks for 2027 and 2028, especially with current prices at or below $40/MWh.
- Long-Term Uncertainty:
- While fundamentals look soft now, factors like economic recession or mild winters could create new buying opportunities. Keep an eye on market developments.
Summer Forecast Highlights
- Hotter Than Average:
- This summer is expected to be among the top ten hottest, with near record-warm ocean temperatures and another active hurricane season.
- Regional Drought:
- Severe drought persists in parts of the West and is expanding eastward.
- Electricity Demand:
- Both ERCOT (Texas) and PJM (Mid-Atlantic) regions are projected to see above-average demand.
In Summary
- Short-Term: Mild weather and strong storage keep natural gas prices soft, but summer heat could quickly tighten the market.
- Medium/Long-Term: LNG export growth and higher risk premiums signal potential for higher prices in 2026 and beyond.
- Action Steps: Review your procurement strategy, consider hedging future needs, and talk to your account manager about ways to manage risk and capitalize on current market conditions.
If you have questions or want to discuss your energy strategy, our team is here to help!
Stay cool, and have a great week!