I wanted to provide some insight into the markets as of recently as well as some short-term outlooks. In summary, the natural gas supply is tightening. This is important due to a large portion of electrical generation is from Natural Gas Power Plants (38% – 40%). So Natural Gas Storage has a large impact on both commodities pricing. There has been an upward trend in pricing with every slight low/lull in the market higher than the previous paired with new record highs.
There have been talks and signals toward a recession, however, the main things that need to change are either Gas Supply, Demand, or both….and I do not see either changing positively in the near future. Please see below for a more detailed view:
- Prompt-month natural gas just posted a 14-year high. The theme of our monthly market intelligence webinar (last week) was; “worse before better.” This is right on the mark. The natural gas market continues to be bullish till further notice. Volatility will be extreme. Pullbacks will be short-lived. The highs will be higher and the lows will be higher.
- As we enter the summer power-generation season, the natural gas supply/demand balance is tightening, not loosening. Demand for gas is strong across all of the consuming verticals (residential, commercial, industrial, power generation).
- Production, or supply, on the other hand, continues to “underperform.” Production is currently at 94.4 Bcf per day, more or less flat YTD, despite much-elevated pricing.
- For gas to back off, demand needs to be reduced or supply needs to increase, or both of these things need to happen.
- It will be very hard for demand to move down in the near term – the “off-ramps” to switch to other, lower-cost options, in the industrial space or in power generation are limited. An economic recession could place downward pressure on pricing, but not immediately in any case.
- This leaves us looking to the supply side, the production side, for a signal – the signal is – increasing output that is confirmed week-over-week, month-over-month. The EIA and other third parties are forecasting a move up to 99ish Bcf per day of production by the end of the year – but the runway for that potential increase in production to provide measurable price relief is getting shorter.
Worst Case Scenario:
Super hot summer (top 3 say since 1950), production continues to underperform, storage lags, and kick start to a cold winter ensues — gas could go much higher from here.
Best Case Scenario:
Substantial break in summer heat — production ramps up showing a clear trajectory to 99 Bcf/day by year’s end – some demand reduction takes place – recession tamps down demand further. Gas prices, in this scenario, soften.
Source: Constellation Energy
Written by Trey Smoyer
Senior Account Manager at Zentility
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Trey is a Senior Account Manager and Retail Energy Expert with a background in Energy Sales and Strategic Credit. If you’re interested in learning more about how our energy procurement technology can help your business track the market to understand when to buy energy at the best price and at the right time, Schedule a demo today.