Are Natural Gas Prices Poised To Move Sharply Higher?

The Jan 9th Energy Update pointed out that the three major factors responsible for increased energy costs the last two

The Jan 9th Energy Update pointed out that the three major factors responsible for increased energy costs the last two years remained firmly in place, but warm weather throughout the U.S. since Christmas decreased demand for Natural Gas and the delay in reopening Freeport LNG restrained exports of Liquified Natural Gas overseas and those two factors combined were the primary reason Natural Gas was declining short-term.

But when either of those two factors abate, we believe Natural Gas is poised to move sharply higher from present levels:

But is there any sign either of those factors are about to end?

Freeport LNG is an enigma with recent independent reports indicating the plant’s reopening will be delayed to at least later in February, as it awaits regulatory approval, while at the same time a Freeport LNG spokeswoman says they are still targeting reopening the plant during the second half of this month pending regulatory approval. Obviously regulatory approval has been a stumbling block for Freeport LNG being able to reopen.

Therefore, the spokeswomen’s comment must be taken with a grain of salt since Freeport LNG has promised to reopen by a certain date several times, but regulatory restrictions kept them from reopening. But if you recall Aesop’s fable of “The Boy Who Cried Wolf” because of his past false warnings the boy was not believed when he cried wolf and the herd of sheep was devoured.

The lesson of this fable for us today is although we may question Freeport LNG spokeswoman’s credibility, when their targeted reopening is finally accurate, Natural Gas prices will likely move sharply higher from present levels, and the risk of not believing their estimates would be very costly. 

The second factor discussed in the Jan 9th Energy Update was Natural Gas prices were declining due was the warm unseasonably weather forecasted by NOAA through at least the middle of January:

NOAA - 6 to 10 - Jan 5th (1)

But NOAA’s latest forecast indicates cooler weather is returning through much of the U.S. in late January:

NOAA - 8 to 14 - Jan 16th

NOAA’s latest forecast will reduce the downside pressure on prices and when their forecast indicates colder than normal weather is spreading throughout the U.S. prices are poised to move sharply higher.

Therefore, if you have not already hedged your cost of Natural Gas or Electricity, we recommend taking advantage of the recent short-term decline in Natural Gas as protection against the risk of higher Natural Gas and Electricity prices long term. Although as I stated last week, it is possible rates could go lower short-term, the downside pressure is abating, and we believe long-term rates will be significantly higher than where they are as I write this report.  

Not every client’s risk tolerance and hedging strategy are the same, but the above report will help you put into perspective the risk/reward opportunities. I invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.

Ray Franklin
Energy Professionals
Senior Commodity Analyst

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