Natural Gas Market

Natural gas futures prices are falling once again. The market is moving its view and bias back down to neutral, with one eye toward cautiously bearish even as the winter heating season is just getting underway. The month of November experienced below normal Heating Degree Days across the U.S. and December is not starting out much better when looking at the entire U.S. There are pockets of colder-than-normal temperatures in the southwest, but in the high population centers of the northeast, the temperatures are still relatively mild for this time of the year. It is going to have to get a lot colder over a much broader portion of the U.S. for demand to start to have an impact on the current oversupply situation, including the all-time record high amount of natural gas already sitting in inventory.

There is no doubt that heating demand is starting to occur in various parts of the U.S. For example as reported by the EIA in their weekly report last Thursday, many areas of the Southeastern United States experienced rare November snowfall and unseasonably cold weather earlier this week. Snow fell in parts of Missouri, Arkansas, Kentucky, Tennessee, and Alabama. The cold weather led to increases in natural gas consumption in the Southeast, particularly in the electric power and residential/commercial sectors, according to the EIA. In the region, many homes are heated by natural-gas-generated electricity. In November, natural gas used for electric power generation remained well above year-ago levels in the Southeast, as colder temperatures throughout the month pushed up demand.

The EIA also reported that dry gas production increased over the report week by 1.2 percent and was 9.4 percent above year-ago volumes for the same week. Daily production for the week was consistently near 65 Bcf. The 1.2 percent increase over the previous week was partly offset by declines in Canadian and LNG imports of 0.7 and 8.9 percent, respectively. Canadian and LNG imports are 17.6 and 51.9 percent respectively below year-ago volumes for the same week. Canadian imports averaged 4.4 Bcf per day over the week and LNG imports averaged 0.3 Bcf per day.

Simply put, supply continues to easily meet any level of demand that is occurring with a record level of natural gas still in inventory waiting to be called on to fill any gap from an above normal level of demand that may occur if the weather gets very cold for a sustained period of time. The net result has been a steady decline in natural gas prices with the current value down 3.6% on Monday and just about $0.17/MMBtu above the year-to-date low made back in October. It just does not feel like the market is overly concerned that we are now in the heart of the winter heating season.

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About JWM Energy Consultant
Professional Energy Consultant. I advise large energy-users on procurement strategies to reduce electricity and natural gas costs.

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