Awash In Natural Gas

Last August I warned that a Natural Gas Price Spike May Be Looming. The reason for the warning was that natural gas in storage – which the Energy Information Administration (EIA) reports every Thursday – had fallen to abnormally low levels just ahead of high-demand season.

Indeed, natural gas inventories remained low throughout the fall, and by November prices had spiked by 60%. By late November, it seemed that prices were destined to hit the $5 per million British thermal units (MMBtu) level.

However, the price peaked about the time inventory levels began to head back to the lower end of the normal range. Last week’s report marked the first time since last June that the level reached the lower end of the 5-year minimum range:

As natural gas levels headed toward the normal range, prices tumbled. From a close of $4.70/MMBtu in November, prices during the first week of January fell back below $3.00/MMBtu.

Natural gas inventories are still about 11% below average for this time of year, and there is a lot of winter left. But, unless the rest of the winter is unseasonably cold, the recent trend suggests that natural gas prices may spend most of 2019 below $3.00.

Demand for natural gas continues to grow along multiple fronts. For example, the EIA reported that liquefied natural gas (LNG) exports set two consecutive monthly records in November and December 2018. EIA estimates that LNG exports averaged 3.6 billion cubic feet per day (Bcf/d) in November and 3.9 Bcf/d in December.