One year ago, natural gas inventories stood at 2,793 bcf. At the time, that represented a 20% deficit to both the prior year’s levels, as well as the five-year average. The 12-mo strip was hovering just above $3, and the front-month (Jan-2018) contract was trading at $3.82/MMBtu. As of today, that script has been completely flipped – inventories stand at 3,411 bcf, a 22% increase to levels a year ago, and almost exactly in line with the five-year average (0.3% deficit). The 12-mo strip is trading at $2.32/MMBtu, and the front-month contract (Jan 2019) last settled at $2.32/MMBtu. It is very rare to see the winter packages trading at or below the same price as the 12-month strip, a weakening in the normal backwardation that is typically present at this time of the year. This does not bode well for the bulls, especially when coupled with the lack of any significant lasting cold on the near-term horizon.
Further highlighting the bearish market dynamics, we can turn to a more recent price history, that of the JAN-2019 contract’s recent high of $2.98/MMBtu on November 5th. In just 7 weeks, and as we entered peak demand season, we have seen the price of that contract decrease by over 27% and it continues to slide. This all sets up for a potential move to below $2/MMBtu in March if storage levels remain relatively unscathed throughout the winter. As we move through January, storage levels and price momentum will both be something to keep an eye on for those considering long-term supply contracts for both natural gas and power – we could be encroaching on historic lows in very short order. At a certain point, falling prices will impact production, and we’ve already seen Shell/Chevron write down their assets to the tune of $2/$11 billion, respectively, citing low natural gas prices and excess global supply. This will have rippling effects on Appalachian production and investment in LNG terminals. For now, a long-term full understanding remains a moving target, and Mother Nature will continue to be the driving force in the coming months.
Other Important Energy News.
- Total stockpiles now stand at 3,411 Bcf, up by 22.1% from a year ago but 0.3% below the five-year average for the same week.
- About 1.7 GW of US nuclear power generation capacity is set to retire in 2020 as plant owners continue to struggle with challenging conditions in deregulated markets, but decarbonization plans could give a boost to next-generation nuclear technology.
- Natural gas prices set to finish the year, on average, below $2.53 which would be the lowest average price since 1999.
To learn more about these developments and to get the latest prices, trends, data highlights, and temperature probabilities, read the full energy update.
If you have any questions, Gary Graham, director of energy management, can take you through the report.