Market Overview

Four Reasons Why Natural Gas Prices Could Touch $3 Shortly


Over the past few weeks, natural gas prices have risen to levels not seen in almost four months, reflecting a steady, albeit slow, ascent, after being range bound since late January. A confluence of factors could fuel the commodity's march to the psychologically important $3 level this summer.

Four Reasons For The Rally To Continue

Record Summer Heat: With record high temperatures heating up the Memorial Day weekend, the summer injection season (April to October) – following a late-ending winter – is turning out to be scorching across major U.S. pockets. Consequently, demand for natural gas to fire power plants for running air conditioners is expected to be fairly strong. The stellar power burn demand could then lead to decreasing storage builds. In fact, certain projections show summer cooling demand to reach all-time highs this year thus contributing to more cooling degree days (CDD). Ultimately, the heightened demand for cooling fuel will put upward pressure on prices. 

Relatively Flat Production: It's a fact that dry natural gas production in the United States increased significantly over the past decade and at around 80 Bcf/day is currently 12% above last year. However, investors must note that the commodity's average output in 2017 was 73.6 Bcf/d, up a marginal 1% from the 2016 level but below the previous highs set in 2015. In other words, the three-year period of 2015 to 2017 saw flat production.

Healthy Storage Dynamics: The year-on-year comparison for the commodity is looking good. As per EIA's latest 'Weekly Natural Gas Storage Report', stockpiles held in underground storage in the lower 48 states was 1.629 trillion cubic feet (Tcf). This is 499 Bcf (23.4%) under the five-year average and 804 Bcf (33%) below the year-ago figure. 

Rising Exports: New pipelines to Mexico and the startup of the Sabine Pass LNG terminal in Louisiana – North America's first large-scale liquefied gas export facility – have meant that exports out of the United States have taken a quantum leap. In fact, per the Energy Department, gross liquefied natural gas exports are set to average 2.92 Bcf per day in 2018, increasing more than 50% from last year. Apart from the growing use of LNG and booming exports, the replacement of coal-fired power plants and higher consumption from industrial projects will likely ensure strong natural gas demand.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: contributor contributorsCommodities Markets


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