Freeport LNG Explosion Slows Natural Gas Rally, But Risk Remains For Higher Prices This Summer

The answer can be found by identifying a moving average where prices rallied from after major news events. As you can see in the above chart,  prices held the 40-day moving average over the last four months and most recently after two major news events. The EIA’s May 10^th Short Term Energy Outlook (STEO), and last week after Freeport’s LNG facility explosion.

As discussed in the May 16^th Energy Update, the market’s hope for lower prices was adversely impacted by the EIA’s May 10^th Short Term Energy Outlook (STEO). In this report, the EIA said they expected Henry Hub prices would average $8.59/MMBtu in the second half of 2022, and after the report, Natural Gas rallied off the 40-day moving average at $6.43 per MMBtu.

The EIA’s (STEO) also warned Natural Gas could rise significantly above forecasted levels if summer temperatures were hotter than assumed in their forecast. Therefore, it was not surprising Natural Gas rallied after the report, but what is significant is Natural Gas held and rallied off  the 40-day moving average. 

The second major news event was after last week’s explosion at the Freeport LNG facility Natural Gas initially plunged, but held and rallied off the 40-day moving average. I believe Natural Gas initially declined after the news, but then rallied due the three risk factors discussed in the May 31^st Energy Update.

There is no guarantee the 40-day moving average will not be breached before the final 2022 high, but because of the three risk factors discussed in the May 31^st Energy Update, the potential for significantly higher prices remain. Therefore, as I have said in recent reports If you have agreements expiring within the next few months, you should consider securing longer-term agreements since prices in the forward markets are still lower from 2023 thru 2026 than where they are today: