LNG

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.