The Monthly Natural Gas Market Newsletter - November 2021

FireSide Natural Gas Monthly Report

Natural Gas Prices


NYMEX December 2021 natural gas futures have been on a roller-coaster ride since taking over as the prompt month contract. Prices hit a high of $6.28 on 10/27 and a low of $4.72 on 11/10. The drop in prices over the last two weeks has largely been attributed to a lack of sustainable cold weather across most of the major consuming regions and an uptick in daily natural gas production. The fundamentals have allowed natural gas storage levels to end the injection season at 3,618 BCF which is a slightly higher level than forecasted a few weeks ago. The December contract is technically getting close to being oversold and sits near a key support levels. Buying this dip for any open December needs is advised.


NYMEX forward natural gas prices remain in a condition of backwardation. The 2022 calendar strip reached a high of $4.65 at the end of October but was last seen trading at $4.18. The strip has sold off almost 10% in the last two weeks along with the front month December 2021 contract. Longer dated 2023 and 2024 NYMEX calendar strips are trading at $3.52 and $3.20 respectively. These outer years have also lost some value since the end of October but not nearly close to the same degree that cal22 has seen. Looking at a longer-term approach to managing future price risk is recommended.


Daily dry natural gas production averaged 93.4 BCF/day in October. This is 1.2 BCF/day higher than what was seen in September and 5.1 BCF/day higher than what was seen in in October 2020. Daily production levels saw a recent high of 96 BCF which is the highest level seen since late 2019. The gains in production have been seen in the West Texas area of the Permian Basin and the Haynesville shale region in East Texas/West Louisiana. Both supply areas are very important to the growth of LNG exports from terminals along the coasts of Texas and Louisiana. The largest shale region in the US, the Marcellus in Appalachia, has seen very little growth activity. Production levels are very flat as a lack of pipeline takeaway capacity exists to take supply to markets in the Northeast, Southeast and Midwest. The region has been plagued with canceled pipeline projects due to stiff regional regulatory issues and environmental opposition. In July 2020, the Atlantic Coast Pipeline (ACP) project was officially canceled by project developers Duke Energy, Dominion Energy and Southern Company. The Mountain Valley Pipeline (MVP) project, much like ACP, is scheduled to bring natural gas from the Marcellus to areas in the Southeast that are starved for more natural gas supply. While the MVP project is 90% complete, on-going regulatory issues have stalled the project and now it has an expected in-service date of summer of 2022.


Global LNG prices in Asia and Europe remain elevated against domestic natural gas pricing in the US. Prices in Europe have improved over the last few weeks as Russia as agreed to export more natural gas to European countries, but prices remain historically high heading into the peak winter heating season. Natural gas storage levels in Europe were depleted after an extremely cold winter last year. European storage levels remain dangerously low and depending on weather, pricing could return to the $40/DTH level. LNG prices in Asia have lost gains over the last few weeks as well. They remain more expensive than what's seen in Europe, at an equivalent $31/DTH, and demand for LNG in Asia is expected to remain robust this winter as well. LNG exports from the US should stay strong considering the price spreads currently seen. LNG feedgas demand recently set a record high of 11.5 BCF/day. The Calcasieu Pass facility will be the newest US export terminal to become operational in 2022. The facility has recently received FERC approval to start accepting feedgas to produce LNG. Daily natural gas nominations to the plant have been slowly increasing and should start to ramp-up further soon in the coming weeks. Sabine Pass' Train 6 is also slated to become operational soon. With both the increase in export capacity from Sabine Pass and Calcasieu Pass, record LNG exports for the US will be seen in 2022.


Natural gas storage helps "balance" the US natural gas market. The highest level of gas ever recorded in storage was back on 11/11/2016 at 4.047 TCF. The US market now considers 4.0 TCF as the new "normal" for adequate levels of gas storage entering the winter heating season. Inventory levels reached 3.958 TCF last November. Storage exited the 2020/2021 heating season at 1.750 TCF. Current storage levels are at 3.618 TCF as the US enters the heating season. Inventory levels are currently 7.8% below year-ago levels and 2.2% below the previous 5-year average. In October, storage inventories rose by 441 BCF during the month. This compares to only 163 BCF that was injected in October 2020. While this level should be sufficient to meet winter demand for the upcoming 2021/2022 season, concerns about how storage levels will look entering the injection season for 2022 and winter heating season 2022/2023 continue to be on the minds of both analysts and traders.