I wrote this a few weeks ago when natural gas prices were above $2.50 then prices dipped, but as of today, have rebounded. I learned a valuable lesson that when writing about the most volatile commodity, do not dilly dally. This article is still relevant and important, so dig in.
A burning question many people have at the moment concerns what’s going to happen to natural gas. Currently, when the summer was in full force, the price began to rise, and then as hurricane season rolled around, prices started to correct, but the important bit is what is going to happen with it in the future. Here’s some information about informed forecasts regarding what will happen to natural gas prices in the U.S. in the future, including what is likely to happen in terms of demand in Asia and Europe, as well as other factors driving cost.
The Current State of Natural Gas
To understand the forecast, it’s first important to see what the price of liquid natural gas and other related commodities has been up to lately, what it’s doing now, and what the trend has been. It’s been an eventful year, to say the least. Events like COVID-19 and Hurricane Laura are having a severe effect on natural gas prices. When COVID-19 picked up speed, the price of oil fell off a cliff. It hasn’t exactly fully recovered — to put it mildly. The price of oil is still low.
The amount of gas being stored currently is as high as it’s ever been because no one is using it. As a general rule, COVID-19 has made people drive less often and for shorter distances.
On top of that, the effects of Hurricane Laura are still being felt in many places in the United States.
LNG Demand Status Through Hurricane Laura
The demand was high at one point, but after Hurricane Laura, futures went down precipitously as of late August. The demand at that point was still low due to Hurricane Laura and other factors. The main factors for the decline came from places like Cameron LNG and Sabine Pass LNG.
Not that this is universal. As of late August, Haynesville Shale values are finally on the rise after falling for four months. The prediction from that point was that after the Gulf of Mexico volumes reach full restoration, production could be up again.
At the start of Laura hitting land, a few pipelines offshore said that they have trouble getting back to pipelines. They also indicated that there was a need for getting thorough offshore and onshore inspections.
Crude oil was up at this point as well, to the tune of 40 cents.
Hurricane Laura Aftermath Predictions
The forecast is now cooling since Americans are dealing with the destruction of Hurricane Laura as of September 4. The short-term forecast at this point predicts that demand will stay on the low side due to current temperatures. The prediction at this point is for liquid natural gas prices to stay at the current level or not too much above it until heat rises a bit.
It’s also likely that the status of COVID-19 and the reaction to Hurricane Laura will be closely tied to what happens here. In the past, it has taken areas of the U.S. months or longer to recover from a hurricane. As long as temperatures stay in a comfortable range in classically warm areas of the country and transportation remains difficult because of the hurricane, then demand could certainly remain low.
COVID-19’s Effects on Natural Gas Prices
If COVID-19 continues to be a damper on the demand for oil, the cooling-off of demand could continue, perhaps affecting prices in the United States and beyond.
There is plenty of reason to imagine that this could be what happens in the future, given the fact that the effects of COVID-19 may be about to spike even more. Many medical experts have been predicting that COVID-19 could enter an even stronger phase than ever before as the winter months approach and more people start staying inside on a more regular basis.
In addition, there’s the fact that many experts are saying that the lower temperatures of the incoming fall and winter are also going to create more favorable conditions for COVID-19 than even what happened last spring and summer.
All of this leads up to the fact that COVID-19 is likely going to get a lot worse before it gets better. What’s the takeaway? Any effect that COVID-19 is currently having on the price of natural gas is likely to get even worse.
The U.S. Energy Information Administration estimates that the total storage of working natural gas in the U.S. at the end of July 2020 was around 3.3 trillion cubic feet (TCF). This is a full 15% more than in the previous five years. The forecast is that inventories will go up by a full 2.0 TCF for just the April to October period.
This forecast says that the season will be all the way up to 4.0 TCF when we get to October 31. In other words, this is breaking record after record. It seems unlikely that demand will account for this much increase in supply.
And again, as bad as COVID-19 is now in the United States, the predictions often lead to the conclusion that they could get even worse, further affecting natural gas. There is some possibility that related prices at the pump could fall precipitously as well. The drop may be even worse than towards the start of the pandemic in the United States.
In general, all of these factors will likely have the same negative effect on LNG prices.
U.S. LNG Export Predictions
The same report from the EIA estimates that liquified natural gas exports will be at an average of 5.5 Bcf/d in 2020. Also, they predict that the average will go up again much later in 2021. However, the EIA predicts that LNG exports from the U.S. will ultimately go down as summer comes to an end.
This will be because the global demand for LNG is also going down. COVID-19 is affecting the entire world to one degree or another, after all.
Demand is down everywhere due to reactions to COVID-19 and efforts to reduce its effects. For example, according to the EIA, there are high gas storage inventories in both Europe and Asia. Prices are tanking as a result.
This is partly due to cancellations in areas like Sabine Pass, Corpus Christi, and Freeport. The LNG export terminals here are all canceling cargo deliveries at an elevated rate. American exports have become less competitive due to the fact that international prices are lowering.
The result of all of this is that the EIA predicts that American exports of LNG will be low for at least a few months. At least 30 cargo shipments have been canceled for September, backing up this prediction.
Overseas and Other Factors
There’s also the fact that oil prices may start to look too cheap. This will cause any long-term decline linking oil and gas to stop in the current low oil price environment.
Demand was certainly low overseas last winter due to COVID, especially since it hit Asia first. Demand in Europe and Asia remains low. But that could be subject to evolving trends based on what is happening in that region.
What’s the Long-Term Outlook on Natural Gas Prices in the United States?
There is some hope in the future, however, when it comes to looking further ahead at natural gas prices. LNG exports have been heavily affected by Laura and COVID. But some are predicting another trend that could eventually overpower the current situation.
October futures are see-sawing. But some are saying that if the heat stays high “relative to normal,” then it’s possible that the bullish market could win out. For example, in some areas like California, the temperatures could be extremely high. Areas like Sacramento are reaching 110 degrees Fahrenheit. It’s this kind of trend that could make the difference. As global temperatures rise, demand for LNG could, as well. That could create something of a counter-trend against the current effects of COVID, Hurricane Laura, and the natural effects of oncoming fall and winter in the U.S.
Predictions about pricing need to be consummate with which trend is ultimately going to prove stronger in the end. After all, rising global temperatures, including in areas like California, are an older and perhaps a stronger trend than previously thought. While temperatures skyrocketed, demand also went way up in the Southwest and California.
California’s wildfire season is likely to be particularly bad this year, as well, given how dry it is in that area.
Summing Up Current Natural Gas Prices in the United States
As is often the case, predictions for liquid natural gas prices are predicated on a number of different trends going in opposite directions. The effects of COVID-19 over the long run, how warm the temperature gets in different parts of the country, how quickly the recovery effort from Laura happens, and many other factors will determine which way the wind blows in the future.
At the moment, however, even the government of the U.S. appears to not have a lot of confidence in LNG. There is no doubt that the situation is fluid, however, and every day can tip the balance. If you want to weigh in, let’s discuss what you think will happen as we get closer to 2021.