EIA’s Latest Short-Term Energy Outlook Forecasts Natural Gas Prices Will Continue Moving Higher in Second Half of 2022
In my May 3rd Energy Update, I warned Natural Gas was continuing to rally and may have further to go
In my May 3rd Energy Update, I warned Natural Gas was continuing to rally and may have further to go
In my May 3rd Energy Update, I warned Natural Gas was continuing to rally and may have further to go before a significant pullback, and after briefly pulling back early last week, prices continued to move higher after the EIA released their latest Short Term Energy Update (STEO).
It appears the market’s hope of lower prices were adversely impacted by the EIA’s Short Term Energy Outlook (STEO) released May 10th. In their report the EIA said they expect the Henry Hub price will average $8.59/MMBtu in the second half of 2022, and Natural Gas rallied from a low of $6.43 per MMBtu on May 10th to open this week trading at $8.06 per MMBtu.
The EIA’s high forecast of Natural Gas prices reflect their expectation that Natural Gas storage levels will remain less than the five-year (2017–2021) average this summer. Lower-than-average storage levels partly result from limited opportunities for Natural Gas-to-Coal switching for power generation, which they forecast would keep the demand for power generation of Natural Gas high despite high prices.
They also warned Natural Gas prices could rise significantly above forecasted levels if summer temperatures are hotter than assumed in this forecast and electricity demand is higher. Their concerns echo what I said in my May 3rd Energy Update that although we could be nearing the end of the present cyclical rally, the last part of the rally could be extremely explosive.
The EIA’s Short Term Energy Outlook (STEO) makes it clear the present rally could extend longer than I anticipated; therefore, if you have agreements expiring within the next few months you may consider securing longer-term agreements since prices in the forward markets are lower from 2023 thru 2026:
Month | 2022 | 2023 | 2024 | 2025 | 2026 |
Jan | 8.34 | 5.29 | 4.75 | 4.66 | |
Feb | 7.98 | 5.09 | 4.62 | 4.56 | |
Mar | 6.6 | 4.67 | 4.28 | 4.31 | |
Apr | 4.83 | 3.89 | 3.75 | 3.85 | |
May | 4.65 | 3.82 | 3.71 | 3.83 | |
Jun | 8.08 | 4.69 | 3.88 | 3.78 | 3.76 |
Jul | 8.17 | 4.74 | 3.93 | 3.83 | 3.89 |
Aug | 8.15 | 4.73 | 3.96 | 3.87 | 3.84 |
Sep | 8.11 | 4.71 | 3.95 | 3.86 | 3.97 |
Oct | 8.09 | 4.74 | 4.01 | 3.93 | 4.02 |
Nov | 8.14 | 4.84 | 4.19 | 4.11 | 4.21 |
Dec | 8.23 | 5.16 | 4.57 | 4.48 | 4.57 |
AVG | 8.14 | 5.49 | 4.27 | 4.08 | 4.12 |
Also, as I said in the May 3rd Energy Update, in some cases our consultants can help you secure blend and extend agreements to take advantage of the expected sharp pullback when it finally comes. The bottom line is we are living in a period of great uncertainty, and we are here to help you navigate these perilous times.
Not every client’s risk tolerance and hedging strategy are the same, but the above report will help you put into perspective the risk/reward opportunities. I invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.
Ray Franklin
Energy Professionals
Senior Commodity Analyst
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