Energy Market Update
As we approach the end of injection season, significant changes are underway in the energy market. Below, we highlight key developments in supply and demand and offer actionable advice for managing your energy costs.
Weather Outlook and Natural Gas Demand (March 17-23)
- Early Week (March 17-20):
Weather systems will bring rain, snow, and cooler temperatures to the western U.S., with highs ranging from the 30s to 60s. Meanwhile, the rest of the country will experience near-normal to warmer conditions under high pressure, highs between the 50s and 80s. This period is expected to see very light natural gas demand. - Late Week (March 21-23):
Weather patterns will shift, with systems moving across the entire U.S., bringing rain, snow, and colder temperatures. Lows will dip into the 10s-30s, while highs range from the 20s to 60s. As a result, natural gas demand is anticipated to increase to moderate levels from Thursday to Saturday.
Natural Gas Supply
- Withdrawals and Storage Levels: With only two weeks left until injection season, withdrawals have decreased, with last week’s withdrawal at -62 Bcf. Despite this drop, it remains higher than expected. Our current storage levels are 27.0% below last year’s amount and 11.9% below the five-year average.
- Production Outlook: Average production is projected at 104.6 Bcf this year and nearly 107 Bcf in 2026. Even with stable demand, a surplus is unlikely for the next couple of years.
Natural Gas Demand
- Market Trends: As we enter the shoulder months, demand is lower, causing the market to sell off. Prices have dropped to about $4.10 per MMBtu. While this trend may continue, the storage deficit will exert upward pressure on prices, preventing them from reaching last year’s lows of around $2.00 per MMBtu.
- LNG Exports: LNG exports nearly reached 16 Bcf/d last week, just 1.5 Bcf below current capacity. New LNG facilities coming online in the next few years will allow the US to meet demand from Europe and Asia, potentially reducing domestic supply and driving prices higher unless production increases.
NYMEX 12-Month Strip
ALL ABOUT THE NYMEX TWELVE-MONTH STRIP
- The NYMEX Twelve Month Strip is the average of the upcoming 12 months of closing Henry Hub natural gas futures prices as reported on CME/NYMEX.
- A futures strip is the buying or selling of futures contracts in sequential delivery months traded as a single transaction.
- The NYMEX Twelve Month Strip can lock in a specific price for natural gas futures for a year with 12 monthly contracts connected into a strip.
- The average price of these 12 contracts is the particular price that traders can transact at, indicating the direction of natural gas prices.
- The price of the NYMEX Twelve Month Strip can show the average cost of the next twelve months’ worth of futures.
- The NYMEX Twelve Month Strip is also used to understand the direction of natural gas prices and to lock in a specific price for natural gas futures for a year.
Natural Gas Production
EIA: Natural Gas Storage Report
What Should You Do?
- Managed vs. Fixed Products: For smaller accounts, longer-term agreements can offer better rates, especially if you can pass through capacity to reduce premiums. If you’re on a managed index product, focus on reducing or eliminating premiums by passing through energy and capacity.
- Hedging Strategies: Consult a qualified energy consultant to recommend hedges when the market dips. It might be beneficial to lock in part of next winter’s supply (25-50%) in April or May or secure on-peak hours during the summer.
Stay informed and adapt your strategies to navigate these market dynamics effectively.
If you have any questions or need personalized advice, feel free to contact us.
The chart displays fluctuations in the price of the prompt month contract, which can be influenced by market conditions such as supply and demand, geopolitical events, and economic factors.