As we begin the new year, the energy market faces significant challenges, particularly in supply.
Natural Gas Supply Overview
- Initial Injection of 2025:
The first injection of 2025 showed a positive reading of +9 Bcf. However, this still leaves us 26% below last year’s levels and 11% below the five-year average. - Pricing Expectations:
Given the current supply deficit, natural gas prices are unlikely to drop significantly below $4.00. Due to the low supply levels, NYMEX prices are expected to remain stable around this mark.
EIA: Natural Gas Storage Report
Demand Analysis
- Shoulder Season Pricing:
As we enter the low-demand months, prices have decreased, reaching about $3.96 per MMBtu over the weekend. However, due to the storage deficit, prices are unlikely to fall as low as they did last year, around $2.00. Instead, they will likely remain near $4.00. - LNG Exports:
LNG exports continued at high levels last week, just 1.63 Bcf below current export capacity. With new facilities coming online in the next few years, demand from Europe and Asia is expected to remain strong, potentially leading to higher domestic prices unless production increases significantly.
US Weather Outlook:
Natural Gas Production Report
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.
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.
Recommendations for Action
If you are not using a managed product, consider longer-term agreements for smaller accounts, as these can offer lower rates. Passing through capacity to reduce premiums is advisable. For those on managed index products, focus on reducing or eliminating premiums by passing through energy and capacity costs.
Strategic Planning
- Consult with Experts:
Work with a qualified energy consultant to recommend hedges when the market dips. - Locking in Future Prices:
Consider locking in part of next winter’s supply (25-50%) in April or May, or securing on-peak hours during the summer when demand is high.