The Natural Gas Rally Is Well Supported By Fundamentals

The Natural Gas Rally Is Well Supported By Fundamentals

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Natural gas prices are close to ~6% for the day. As we approach the end of winter, weather model roulette takes a backseat, but no one said anything about what +12 TDDs could do for prices.

ecmwf-eps

HFIRweather.com

With weather models now projecting slightly higher heating demand over the next 15 days, the already tight and low US natural gas storage is going to grab more traders’ attention.

STORAGE

EIA, HFIR

Balance

EIA, HFIR

On a fundamental basis, we currently have the implied balance going forward at +0.2 Bcf/d. But as you will see in the fundamental breakdown, the current rally in natural gas is justified. The key figure to watch is Lower 48 gas production which remains around ~94 Bcf/d or down ~3 Bcf/d from the peak reached at the end of 2021.

Production

HFIR

As we’ve said previously, the longer it takes for natural gas production to regain the highs, the steeper the implied existing decline rates are. The largest US natural gas producers have already committed to keeping production flat while generating very high levels of free cash flow. So the only production growth will come from Haynesville and the Permian. So far, we have not seen any meaningful response from those two shale basins yet.

Demand

HFIR

Then if you look at the demand side, LNG exports are going to average close to ~13+ Bcf/d throughout the injection season. Power burn demand is going to be structurally higher this year as well due to the low coal stockpile. Industrial demand is going to pick up with US refinery margins at multi-year highs. Putting all the variables together, total gas demand over the injection period should average at an all-time high if mother nature cooperates (warmer than normal).

The rally we are seeing in natural gas is the market’s way of trying to price in the absolute low levels of storage we are going to have throughout the injection season. At the moment, we are projecting ~3.4 Tcf for November, but if this summer is warmer than normal, then we could go as low as sub-3.1 Tcf. The risk is to the upside this year, and investors/readers should take note.

For us, we are just remaining long Antero (AR). We think this is the best way to play both the shortage of natural gas in the US along with the shortage in NGLs.

NG Trading Portfolio

HFIR

Originally Posted on: https://seekingalpha.com/article/4497200-the-natural-gas-rally-is-well-supported-by-fundamentals?source=feed_tag_commodities
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