Energy News: Winter Update
Energy News Update: 6 January 2025 Winter Update Our Winter Energy Update will review where Natural Gas rates have been
Energy News Update: 6 January 2025 Winter Update Our Winter Energy Update will review where Natural Gas rates have been
Energy News Update: 6 January 2025
Our Winter Energy Update will review where Natural Gas rates have been in 2024 and discuss where rates will likely go in 2025 and beyond.
In our Feb 19th, 2024, Energy Update, we said all major weather models had unexpectedly extended their forecast of milder-than-normal weather through the end of February. This was expected to increase the already higher-than-normal total supplies on February 5th by more than 100 Bcf by March 8th.
The unexpected increase of supplies in storage pushed prices below long-term support near $2 per MMBtu:
Prices unexpectedly declined below long-term support near $2.00 per MMBtu due to total supplies projected to be 2,260 Bcf by March 8th, which was 37% above the 5-year moving average. Based on what happened in the past, we asked if prices would remain near these very low prices for an extended period, or were they expected to move higher this year.
We answered this question by analyzing other instances when supplies were as high as they were this year due to warmer-than-normal winters.
After reviewing data from the Energy Information Administration’s website, we discovered in 2012 and 2016, supplies were actually higher than where they were expected to be this year on March 8th.
As you can see from the above charts, supplies were at 2,369 Bcf on Mar 9th, 2012, and 2,478 Bcf on Mar 11th, 2016, and in both cases, Natural Gas prices were much higher by the end of the year.
After reaching lows in 2012 and 2016 with total supplies higher than today, why did prices more than double by the end of the year?
Similar to this year, they experienced very warm winters with supplies reaching extremely high levels, and prices continued higher into the end of the year simply because they were unsustainably low.
Prices are unsustainably low when they are below the cost of production. It should also be noted that the longer prices stay low the higher they will go!
This is a byproduct of weaker companies being forced out of business resulting in decreased competition, and the surviving companies are highly motivated to increase prices to make up for lost profits accrued while prices were low
In our February 19th Energy Update we said as we approached the lowest price since 2000, the conditions supporting a major low in Natural Gas were in place, and Natural Gas would likely be significantly higher by the end of the year.
How accurate was our prediction that Natural Gas would be
significantly higher by the end of the year?
As you can see from the above chart, similar to 2012 and 2016, after reaching a $1.52 low when supplies were near record levels, as we predicted, Natural Gas was significantly higher by the end of the year.
We will now discuss where prices will likely go in 2025 and beyond.
In our December 2nd Energy Update we said the Trump administration’s policies promoting increased production would mitigate the impact of surging electricity demand domestically and exports internationally.
But demand is expected to outpace supplies for an extended period, which is supported by the observation that when prices were as low as they were in 2024, since 2000, it always preceded Cyclical Bull markets that trended higher 2 to 4 years,
And it didn’t matter who was president at the time!
To fully appreciate why this is so, I encourage you to watch the video discussing our Dec 2nd video Energy Alert in the link below explaining why the growth of Natural Gas exports will likely support higher prices during the Trump administration:
To understand why prices would likely move higher, you need to understand what primarily determines the price of a commodity.
The price of a commodity is primarily determined by supply/demand. The 2023–24 North American winter was the warmest winter on record across the contiguous United States; therefore, demand for Natural Gas was extremely low resulting in the storage of Natural Gas ending the winter heating season 41% above the 5-year moving average.
In our May 6th, 2024, Energy Update, we warned that increased Natural Gas exports would likely turn 2024 supply surpluses into supply deficits in 2025. Cold weather forecasted for the eastern United States this month is expected to evaporate all excess supplies above the 5-year average for the first time since 2023, increasing the risk of higher prices from 2025 through 2027.
However, prices will not increase without periodically declining for timely entry into new positions. In the near term, a Polar Vortex could bring an extended period of frigid weather into the eastern United States, and the latest pullback may be timely for those with contracts expiring:
Although past performance does not guarantee future results as you can see in 2014 Natural Gas declined just before the start of a Polar Vortex bringing an extended period of frigid weather Polar Vortex:
Although no one knows whether we will experience an extended period of frigid weather similar to 2014, we will likely experience supply deficits over the next few years due to surging domestic electricity demand to accommodate the explosion of data centers, electric vehicles needing to be connected to the grid, and exports expected to rise for the foreseeable future.
The result will be high volatility, and the risk of higher prices will continue to increase, and we recommend anyone with agreements expiring within the next 18 months take advantage of short-term declines to reserve Natural Gas and Electricity to be available when their present agreements expire.
Not every client’s risk tolerance and hedging strategy are the same, the goal of our reports is to reveal your risk/reward opportunities. We invite you to call one of our energy analysts to help plan a hedging strategy appropriate for your situation.
Ray Franklin
Energy Professionals
Senior Commodity Analyst
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