Natural Gas Prices - Dec 16

[dan_s]

US natural gas futures fell more than 3% to $3.87 per MMBtu at the time of this post, extending losses for a third consecutive session and marking the lowest level since late October. <
Weather forecasts across the US point to above-average temperatures for much of the country ahead of Christmas, which will curb space heating demand.
At the same time, record production levels and ample storage supplies continue to weigh on prices. LSEG estimates Lower-48 output at around 109.7 Bcf/d so far in December, broadly in line with the record highs set in November.
According to the latest EIA data, US utilities withdrew 177 Bcf from underground storage in the week ended December 5, slightly above expectations and representing the first significant draw of the season. < CelsiusEnergy is forecasting draws of 164 Bcf for the week ending December 12 (68 Bcf above the 5-year average) and 165 Bcf for the week ending December 19 (55 Bcf above the 5-year average). Today (December 16) natural gas in storage is below the 5-year average.
> Meanwhile, US LNG exports remain robust, with shipments in November reaching a record 10.9 million metric tonnes, around 70% of which were destined for Europe.

Bottomline: The surplus of Ngas in U.S. storage to the 5-year average is gone before Christmas as I predicted, but likely to move to 30 to 50 Bcf above the 5-year average by year-end due to mild weather leading up to Christmas. Winter is just beginning, and Miss La Nina is going to create more big swings in the jet stream after Christmas. LNG exports will continue to increase, setting new records week after week.
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EIA Short-Term Energy Outlook that was released December 9:

Natural gas prices and storage
An early December cold snap is putting upward pressure on natural gas prices. The Henry Hub spot price
in our forecast averages around $4.30 per million British thermal units (MMBtu) this winter heating
season (November–March), 22% higher than last winter. We raised our forecast for prices this winter by
more than 40 cents/MMBtu on average compared with last month’s STEO, largely because early
December has been colder than we assumed in last month’s STEO, leading us to raise our estimate of
natural gas used for space heating.

Based on data from the National Oceanic and Atmospheric Administration, we assume December will
have 8% more heating degree days (HDDs) than the 10-year average, and 7% more HDDs than we
assumed in last month’s forecast. Because of the colder weather, we now forecast the residential and
commercial sectors will consume 6% more natural gas in December than we forecast last month,
reducing the amount of natural gas held in storage. The United States entered the winter heating season
with 4% more working natural gas in storage than the previous five-year (2020–2024) average. We
expect inventory withdrawals will be 580 billion cubic feet (Bcf) this December, 28% more than the five
year average withdrawal for the month. We forecast U.S. natural gas stocks will end the winter at 2,000
Bcf, 9% above the five-year average. < This last sentence is just a Wild Ass Guess ("WAG") by EIA because
winter weather passed the next ten days is very difficult to forecast during a La Nina winter.

Rising production helps moderate natural gas prices next year. We expect the Henry Hub spot price to
average almost $4.50/MMBtu in 4Q26, down 5% from last month’s forecast. U.S dry natural gas
production in our forecast averages 109 billion cubic feet per day (Bcf/d) in 2026, up 1% from this year.
We raised our forecast for U.S. natural gas production compared with the November STEO after we
updated our assumptions about natural gas-to-oil ratios (GORs). Specifically, we raised our expectations
of gas-to-oil ratios ("GORs") in the Permian region based on recent production trends, leading to more overall natural gas
production in our forecast for 2026. < If we have just normal winter weather in Q1 2026 it will be difficult if not impossible for natural gas supply to keep up with gas demand that will be increasing by over 5% each year through at least 2030 because of the steady increase in LNG exports.
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Bottomline: Oil prices will remain under pressure due to the relentless geopolitical "noise". Even if the war in Ukraine does end, there will not be a surge in Russian oil exports. I also believe that OPEC+ (controlled by Saudi Arabia) will not let oil prices fall much further. More than half of the 22 countries in OPEC are past peak production and cannot produce up to their quotas.
Weather is the primary driver of natural gas demand and there will be big swings in the winter weather pattern. The "Gassers" and the companies in our High Yield Income Portfolio are the best bets. On tabs 2 and 3 of the Sweet 16 Summary spreadsheet, which I update each week, you can find the production mix of each company in all three of our model portfolios. All of the Sweet 16 produce a lot of natural gas.