Energy Prospectus

EIA reported a build of 13 Bcf for the week ending 7/30/2021. This was smaller than the median estimate of 18 Bcf. Today's stat fell outside the expected range, which was 22 Bcf on the more bearish end, and 14 Bcf on the more bullish end.

At the time of this post, the front month NYMEX futures contract for Henry Hub gas was trading at $4.18/MMBtu. This compares to the HH gas prices being used in my forecast/valuation models of $3.50 for Q3, $3.75 for Q4 and $3.25 for full year 2022.

Inventories for the US are now at a deficit of 542 Bcf to last year and a deficit of 185 Bcf to the five-year average. < A reminder that the US began last winter's heating season with gas in storage 226 Bcf above the 5-year average and at the end of March, 2021 gas in storage was 40 Bcf below the 5-year average. Except for two weeks in February, last winter was mild.

Unless there is a big drop in LNG exports there is now zero chance of storage getting back to the 5-year average by mid-November. Utilities and LNG exports see the tightness and the "Bidding War" has begun.

Reuters: U.S. natgas futures rise over 3% to 31-month high on hot forecasts
U.S. natural gas futures climbed over 3% to a 31-month high on Wednesday on forecasts for hotter weather over the next two weeks than earlier expected and soaring global gas prices that should keep U.S. liquefied natural gas (LNG) exports near record highs. "The (weather) forecast has turned a lot more supportive looking out for the next 6 to 10 days ... and we're seeing a lot of increased exports," said Marshall Steeves, energy markets analyst at IHS Markit.

Goehring & Rozencwajg
Natural Resource Market Commentary
August 5, 2021

"Natural gas prices were extremely strong during 2Q 21, rising almost 40%. Because of
extremely warm weather back in November and December, US natural gas inventories
started the year approximately 250 bcf (or 7%) above five-year averages. Declining supply
and a summer that has been 7% warmer than average reduced inventories to a 170 bcf deficit
(about 6%) relative to five-year averages. Given the forecast for continued hot weather this
summer and our modelling of supply, we believe the inventory deficit will widen as we
progress through the beginning of withdrawal season. We remain extremely bullish toward
North American natural gas prices and recommend investors maintain investments in
companies with high quality natural gas reserves."