Natural gas futures see multi-month lows, despite the polar vortex

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February 8, 2019 1:29pm NYSE:UNG

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From Jude Clemente:

It was indeed remarkable that the U.S. natural gas market saw the lowest prices since July last week despite Polar Vortex 2019. In particular, given that gas demand peaks in the Winter when heating and power generation needs collide, the U.S. hit an all-time record of 150 Bcf/d of consumption.


This week, gas prices have fallen further, with the market closing today down 11 cents to $2.55 per MMBtu for prompt month (March).

With still a week to go before Valentine’s Day, this is absolutely incredible.

Technically, there are two seasons for the U.S. gas market: Summer (April-Oct) and Winter (November-March). Gas is injected into the ground in Summer and gas is withdrawn in Winter to meet demand that rises well above production.

This two-tier system for our gas market, however, is obviously oversimplified.

In reality, the U.S. gas market is more of a triad, Summer, Winter, and Shoulder season (Fall, Spring). The Shoulder season has lower gas demand because milder weather means less air conditioning than Summer and less heating than Winter.

So increasingly, already favored because it has lower greenhouse gas emissions to combat climate change, natural gas wins regardless of which direction our climate goes: scorching summers devour gas for power and frigid winters devour gas for heating.

In addition, increasingly so, gas is now our main source of electricity, at 33-35% of total generation, and electricity is our fastest way to heat homes, pointing the arrow even more toward “gas, gas, and more gas.”

So the question: are U.S. natural gas prices seasonal?

As we continue to use more gas for power, heating, manufacturing, and exporting, this is a critical question.

Lower prices in Winter like we saw during Polar Vortex 2019 are not as uncommon as most gas market watchers probably realize. When looking from 2011-2018, a few things can generally be said about natural gas prices, but the seasonality of prices is not as apparent as one might think.

Yes, generally speaking, U.S. gas prices are higher and more volatile during peak demand months in Winter and lower and less volatile during the Fall.

But, as the graphic below shows, seasonal differences overall are not so clear.

A few other points on gas prices to remember. Since our shale revolution took flight in 2008, with production up nearly 55%, natural gas has become lower and more stably priced. Yet somehow, despite record production, U.S. gas prices since November have spiked to their highest volatility since 2009.

Choppy and erratic, current winter gas prices in November hit their highest level since 2014, only to close today at their lowest level since last February 12. Note: there is very strong technical support at $2.51, however, and I do indeed expect an upward correction. That mid-$2.50s level has held very strongly in recent years.

As the U.S. gas market continues to rapidly grow, become more complex, and be forced to absorb booming exports, there are just too many factors to predict gas prices based on month or season. For example, take Shoulder month May 2017, when the massive 3.25 Bcf/d Rover pipeline being suspended impacted national prices: “A Single Pipeline’s Taking U.S. Gas on a Rollercoaster Ride.

LNG exports especially are adding a new dynamic to our market that are likely to affect domestic Winter pricing most. Colder weather abroad will typically translate into more U.S. supply leaving the country. As the U.S. export complex continues to mushroom, with capacity nearly tripling this year to over 10 Bcf/d (~12% of current U.S. gas production), exports will put a floor under our own pricing, with the potential to increase prices and volatility.

To illustrate, the sustained price collapse during the first half of 2016 is becoming increasingly less likely because other nations are gaining greater access to our gas, and they will be more than willing to purchase it as prices fall, thereby pushing our prices up again.

The ultimate impact of huge LNG exports, there is an astounding 55 Bcf/d of potential U.S. LNG capacity now under FERC review, is somewhat unpredictable because they will be a completely new phenomenon. There is almost no way to fully model today the domestic impact – good or bad – of the U.S. possibility becoming the world’s largest LNG supplier within five to seven years. It is a completely unprecedented achievement.

But to be clear, we should never underestimate the ability of the U.S. shale industry to adequately respond to a massive amount of gas leaving the country for other nations. With at least a 100-year domestic shale gas supply, a pertinent truism to remember: “more exports (i.e., more demand) beget more production.”

In any event, we will be devouring lots more natural gas regardless of what its price is.

We are increasingly installing a very low price elasticity of demand for natural gas

Gas is surging toward being 50% of all U.S. electricity capacity and intermittent renewables simply cannot compensate for ongoing coal and nuclear retirements.

In fact, gas is the required backup for wind and solar themselves when there is no wind or sun, something that happens more frequently than people in the renewable energy business care to admit.

Not to mention that we have over a $200 billion build-out in new manufacturing plants that are specifically configured to utilize U.S. shale gas.


The United States Natural Gas Fund L.P. (UNG) was trading at $23.05 per share on Friday afternoon, up $0.10 (+0.44%). Year-to-date, UNG has declined -1.16%, versus a 1.14% rise in the benchmark S&P 500 index during the same period.

UNG currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #52 of 108 ETFs in the Commodity ETFs category.


This article is brought to you courtesy of Forbes.


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