The Monthly Natural Gas Market Newsletter - October 2021
FireSide Natural Gas Monthly Report
Natural Gas Prices
NYMEX OCTOBER 2021
NYMEX October 2021 NYMEX
natural gas futures settled at $5.841,
marking the highest settlement price
seen since 2013. The contract took
over as the prompt month contract
on 8/27 when it opened trading at
$4.237. The contract managed to
trade in over a $2.00 price range
while as the prompt month contract.
While the contract was in an uptrend
for the entire month, it experienced
an extremely wild final two days of
trading prior to expiration. The
contract gained 70 cents over its last
days and managed to post an intraday trading high of $6.28 before
crashing back down in the final
hours of trading on expiration day to
settle at $5.841.
NYMEX FORWARD CURVES
NYMEX forward natural gas prices
remain in a condition of
backwardation. The calendar year
2022 NYMEX strip still lags the price
gains seen in the most recent
expirations of the Sep21 and Oct21
NYMEX contracts but is trading
substantially higher than where the
strip was trading at earlier in the
springtime. At one point, cal22, cal23
and cal24 all were virtually trading flat
against each other at around the
$2.50 level. Cal22 is now trading at
almost $4.50 while cal23 is at $3.60
and cal24 is at $3.30. With the
natural gas market looking
fundamentally bullish, higher prices
are still on the horizon.
NATURAL GAS SUPPLY - US DAILY PRODUCTION
Daily dry natural gas production averaged 92.2 BCF/day in September. This is slightly down in
comparison to daily production levels seen in August that averaged 92.4 BCF/day and 93.3
BCF/day in July. Despite natural gas prices increasing to levels not seen in over a decade,
producers have remained very disciplined in terms of drilling budgets and not racing to capture
higher prices. In years past, increases in prices would've seen shale producers increasing flood
gas into the market to capitalize on these gains. However, since the pandemic, which saw natural
gas prices reach multi-decade low levels, Wall Street investors have made it very clear that it's
time for producers to focus on providing shareholder value and not trying to obtain market share.
Even as natural prices globally are seeing record high price levels, it appears that there is little
urgency for domestic natural gas producers to increase drilling activity. In addition to a shift in
focus to shareholder value, natural gas producers also must contend with the fact that the US
natural gas infrastructure lacks capacity to significantly absorb more natural gas production. The
inability to improve the much-needed infrastructure to move molecules to domestic demand areas
will likely be an Achilles heel in several market areas where the supply vs demand balance is
already extremely tight. This will lead to periods of extreme regional price volatility.
US NATURAL GAS DEMAND
Natural gas demand in the US has increased steadily over the last few years. The
biggest jump in demand has come from the export sector. Currently, the US exports
over 18% of all daily domestic natural gas production in the form of LNG exports and
pipeline exports to Mexico. US LNG demand has been averaging almost 11
BCF/day in 2021. Extremely strong global natural gas prices have made US natural
gas a very attractive option for LNG buyers in Asia and Europe. With recent prices
trading at over $30/DTH in both Asia and Europe, "cheap" US natural gas is very
economic to buy for off-takers that have long-term supply contracts in place with US
LNG export facilities. While the US does have a small amount of operational
capacity that is used to sell LNG loads in the spot market, most LNG capacity is tied
to longer-term contracts. US LNG capacity will get a boost in 2022 as Train 6 at
Sabine Pass (the largest US LNG facility) and the start-up of the Calcasieu Pass
facility are slated to begin commercial operations early in the year. Several other
proposed LNG facilities are near Final Investment Decision (FID) and would
significantly increase US export capacity in coming years if these projects come to
fruition. With global LNG pricing so strong, the odds look pretty good that some of
these proposed facilities will indeed become operational at some point in time. The
US is attempting to cement itself as a global leader of LNG. While this would be
considered a great achievement for the US, it would underscore the importance that
domestic natural gas production and global economics would have on pricing for
natural gas end-users here in the US.
NATURAL GAS STORAGE ANALYSIS
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 3.369 TCF with 3 weeks left in the traditional
injection season. Inventory levels are currently 12.9% below year-ago levels and 4.9% below the previous 5-year average.
In September, storage inventories rose by 299 BCF during the month. This compares to 301 BCF that was injected in
September 2020. Assuming "normal" weather conditions for the remainder of the injection season, the working level of gas
entering the upcoming heating season is forecasted to by around 3.6 TCF. 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.
ENERGY RELATED ARTICLES AND STORIES
https://www.barrons.com/articles/coal-gas-energy-51634234195.
https://www.wsj.com/articles/a-winter-of-giant-gas-bills-is-coming-are-you-ready-11634203801
