Natural Gas Still Looks Soft in the Near Term
Minneapolis, MN | March 7, 2023 | By: Steve Sinos, Blue Lacy Advisors, LLC
The recent rally closed the Summer/Winter contango but still trades above historical norms. However, steep contango continues to send a slow-down message to producers on supply.
Henry Hub’s dependence on export economics is increasingly apparent, as is basis risk.
Storage numbers continue to offer a volatility buffer in both the US and Europe, though with ongoing regional disparity.
Winter gas continues to trade at a substantial premium to summer, despite a ~12% tightening of contango so far this week. At ~88 cents wide as of writing, the winter strip trades at a premium wider than any point during the previous five years. Not surprisingly, storage in the US is gaining on the 5-year max (more below). The EIA estimated that US natural gas production was up modestly during December 2022 to 99 Bcf/d compared to 98 Bcf/d during December 2021. During the month, consumption reached 109 Bcf/d, compared to 97 in December 2021. Consumption was higher YoY in residential use, commercial deliveries, and power burn. Industrial use was practically unchanged, down ~0.4 Bcf/d YoY.
But the importance of exports is increasingly apparent for support of the Henry Hub benchmark. Despite lower LNG exports, the US was a net gas exporter during December. To that end, Freeport’s restart has pushed US feed gas for LNG above 13.5 Bcf/d, approaching an all-time high.
*This summary is based off March 2, 2023
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Meet the Author!
Steve has spent his career in strategy, risk, trading, and investment. He works with investors to source investments in opportunistic or high growth sectors, with particular interest in early-stage companies solving clearly defined problems.
He is currently a Managing Partner with Blue Lacy Advisors LLC, giving management teams and investors confidence in their decision making by supporting strategic planning and execution, risk management, commodity trading, and market analysis.
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