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Unseasonably Warm Weather Throughout the U.S. Continues to Pressure Natural Gas Prices

The Jan 3rd Energy Update recommended taking advantage of the recent unexpected short-term decline in Natural Gas as protection against

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The Jan 3rd Energy Update recommended taking advantage of the recent unexpected short-term decline in Natural Gas as protection against the risk of higher Natural Gas and Electricity prices long-term, and although it is possible rates could go lower short-term, I believe there will be a time in 2023 when rates will be significantly higher than where they were as I wrote that report.

Since writing the Jan 3rd Energy Update, NOAA  forecasted the unseasonably warm weather would continue at least through the middle of January:

NOAA - 6 to 10 - Jan 5th

The unseasonably warm weather throughout the U.S. decreased demand for Natural Gas and prices declined slightly after the Jan 3rd Energy Update:  

But as stated in my last report, I believe there will be a time in 2023 when rates will be significantly higher than where they are as I write today’s report.

The three major factors leading me to believe increased energy costs over the last two years remain firmly in place:

  1. America’s move away from Fossil Fuels to Green Energy remains our nations policy as demonstrated by the “Inflation Reduction Act”, which was signed into law on August 16th, 2022.
  2. America’s aggressive fiscal spending is continuing with the Omnibus Bill passed just before Christmas. Since January 2020, the Federal budget has increased 34%, which clearly increases the risk of inflation in the U.S for the foreseeable future.
  1. The demand for our Liquefied Natural Gas (LNG) in Europe remains very strong with their Green Energy policies resulting in prices much higher than America’s.

It is important we understand although Europe experienced milder than normal weather this fall and record-breaking warm weather the last few weeks, their pricing is still up more than 350% over the last 2 years:

Europe’s demand for America’s liquified Natural Gas (LNG) is expected to continue for years to come with our prices a fraction of theirs, and when Freeport LNG resumes exporting Liquefied Natural Gas overseas early this year our Natural Gas prices will likely move higher from present levels.

Therefore, if you have not already hedged your cost of Natural Gas or Electricity, I recommend taking advantage of the unexpected recent short-term declines 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, I believe there will be a time in 2023 when 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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