Warmer-than-normal winter weather over the eastern half of the U.S. is wrecking the hopes of those who looked for $5-$6/MMBtu natural gas prices this winter.
"At this stage of the game, should recent weather outlooks hold, the outsized bull case for this winter appears largely out of the cards despite a continued tight global gas market," Tudor Pickering Holt & Co. gas analyst Matt Murphy told clients Dec. 10.
Although the NYMEX natural gas futures contract traded above $5/MMBtu with peaks above $6/MMBtu in October, warm weather cut residential and commercial demand across most of the country in November, according to the U.S. Energy Information Administration's latest energy outlook Dec. 7.
The most recent forecast from the National Weather Service shows above-average temperatures into Christmas Eve in the high-consumption Midwest and Northeast portions of the country.
"The bigger problem facing winter heating commodities like natural gas and [heating oil] is the ten-day forecast for the East Coast," Mizuho Securities USA Director of Energy Futures Robert Yawger said in his afternoon report Dec. 9. "There are no days in the extended forecast with an overnight low below freezing until a 30-degree low on December 23."
If that forecast pans out, the tail end of warm weather could extend into January, Yawger predicted, putting further downward pressure on prices.
"We forecast natural gas spot prices at Henry Hub will average $4.58/MMBtu in [the first quarter of 2022], compared with a forecast of $5.24/MMBtu" in the November outlook, EIA said. "The lower forecast reflects our expectation that U.S. natural gas inventories will finish the withdrawal season at the end of March at a higher level than previously expected."
Offsetting some of the domestic demand loss is increasing demand and high prices for LNG cargoes in Europe and Asia, ClearView Energy Partners LLC analyst Jacques Rousseau said. "The forward curve for many major international gas and liquefied natural gas price markers remains above ~$30/MMBtu through March 2022," ClearView said. "We expect feed gas deliveries into U.S. liquefaction facilities to average ~11-12 Bcf/d in calendar year 2022, supporting a high level of U.S. LNG exports."
The prompt month NYMEX gas futures contract for January delivery gained 3% to $3.930/MMBtu by mid-afternoon Dec. 10, according to NYMEX. Although the contract price has come off more than 10% in December after falling through November, it still showed a 51% gain over a year ago as of Dec. 8, according to S&P Global Market Intelligence data.
"After a significant drawdown across the curve in recent weeks on continued warm weather outlooks for December, Henry Hub has bounced back towards the ~$3.75/MMBtu range as tight balances and the fact that more than a few weeks remain this winter still offers some potential upside risk," Tudor Pickering Holt said.
Investors have been evenly split in their reaction to falling commodity prices and the impact on U.S. pure-play shale gas producers. Six of the shale gas drillers tracked by S&P Global Market Intelligence, led by Southwestern Energy Co., have posted gains in the past month, while four have posted share price declines, with Range Resources Corp. losing the most value, according to S&P Global Market Intelligence data.