Winter Is Here. Buckle Up!

We are off to a bumpy start this winter. Cold weather last week pushed the NYMEX natural gas price past the highs previously set early this year during the January cold snap. Prices surged to almost $5.00 per MMBTU. As we have pointed out repeatedly in recent Usource energy updates, the natural storage inventory is significantly behind last year and 16% below the five year average. Now we’ve seen, with the first bit of cold weather, that the market is poised for a volatile winter.

Balancing out the concerns over the low storage inventories, the record production of natural gas continues. In fact, as the weather turned warmer at the end of the week, prices came back down. The outer year curves continue to trade lower than 2019 pointing to the belief that the strong natural production will be adequate to accommodate demand growth, including increasing LNG exports.

Zooming in on New England, the cold weather had an equally dramatic effect on natural gas basis. On November 14, natural gas was trading over $8 at the Algonquin and Tennessee Zone 6 locations. As cold weather dissipated, basis came off moving prices back down to the mid $5.00s on November 16. In New England, get ready for double punch driving volatility this winter.  With cold weather snaps, expect the typical basis blow outs we’ve seen in recent years and add to it the increased volatility in the NYMEX due to the storage shortfall. That means potentially more severe electricity price spikes for this winter. In addition, Upstate New York basis has risen as more pipeline capacity has come online to take abundant Marcellus gas west and south.

NYMEX Prompt Month

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