degree days

Natural gas comparative inventory has increased +238 bcf (+162%)since mid-August. The last time C.I. was at the current level, spot price was a dollar lower than it is today.

Gas shortages in Europe and Asia have raised global gas prices. This is probably not a short-term phenomenon and U.S. exporters will respond aggressively next year.

The collapse of the 12-month natural gas futures spread from $1.02 to zero this week and the future strip indicates a narrow band of monthly average prices between $3.65 and $4.05 for next year.

There is not a gas supply problem. Not now nor going forward through the winter. At the same time, it is pointless to argue against the market’s judgment about supply urgency.

A warm winter and resulting higher comparative inventory levels might result in $3.50 prices but not at the inventory levels in EIA’s forecast.

Price formation is difficult to evaluate in a market with high supply urgency. This week, C.I. moved +25 bcf closer to the 5-year average but markets ignored the large addition to storage and moved price even higher than last week.

NOAA’s forecast for lower-than-average energy use this week is contradicted by IHS-EIA demand data that show a 4 bcf/d increase. I expect prices to remain volatile but not to test the $6 level again until the approach of next week’s storage report.

For now, markets are cautiously comfortable that there will be enough gas for the winter. Comparative inventory has increased +61 bcf (+42%), rising for four consecutive weeks so prices are lower.

EIA expects December 2021 and January 2022 prices near $6.00 per mmBtu and then, declining to around $3.50 by May 2022.

Let’s hope that high gas prices finally do what they’re supposed to do namely, get investor capital back to the industry so it can begin drilling in earnest again after almost two years of ESG fiscal restraint nonsense.