Natural Gas Rallying Due to Hot Weather Forecasted Throughout the United States

My belief the recent decline triggered by the June 10^th Freeport explosion and subsequent PHMSA report could be a long-term hedging opportunity for our clients was largely based on my June 20^th Energy Update.

In this report, I explained the delay in reopening Freeport LNG, which accounts for about 20% of U.S. LNG exports decreases exports of LNG overseas by nearly 2 Bcf/d allowing more supplies to remain in storage in the U.S. for the generation of electricity. But I warned while this will likely decrease the supply deficit to the 5-year average, it is not expected to totally eliminate it.

Goldman Sachs Commodities Research following the latest Freeport outage news revised its end-October storage estimate to just over 3,500 Bcf, versus 3,424 Bcf predicted in April. “This remains a low storage level relative to history,” Goldman analysts Samantha Dart, Damien Courvalin, and Romain Langlois said in a research note, and should our U.S. Natural Gas balances be tighter than expected in the coming months, the risk remains that U.S. Natural Gas prices may need to trigger max substitution towards Appalachia coal, which we estimate would require a sustained gas price rally to around $12/MMBtu.”

• The question was even with the delay in reopening Freeport LNG, what would cause supplies to be tighter than expected this summer?

And based on NOAA’s above forecast of warmer than normal weather until the end of July, Natural Gas’s supply deficit could be greater than it was on June 10^th before the Freeport LNG explosion. And if warmer than normal weather continues into August or a major hurricane impacts Natural Gas facilities in the Gulf of Mexico, Goldman Sachs Commodities Research’s statement “U.S. Natural Gas prices may need to trigger max substitution towards Appalachia coal, which we estimate would require a sustained gas price rally to around $12/MMBtu.” is not only possible their estimate could be surpassed with prices challenging the Katrina 2005 high.

Fortunately, as I explained in previous reports, Natural Gas prices continue to be lower in the forward markets from 2023 thru 2026; and I recommend securing longer-term agreements, which include lower prices from 2023 thru 2026: 

Also, as I said in recent reports, when appropriate our consultants will also help you secure blend and extend agreements to take advantage of an even sharper longer-term pullback if and 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