Natural Gas down on warm weather, but winter is not over yet..

Market Update | 1/20/2023

Natural gas futures have plummeted due to the warm winter weather over the past few weeks. Depending on when they expire, this could be an excellent time to add length to your current electricity or natural gas agreements. While the weather has been the primary driver for this bearish plunge, it’s not the only factor leading to the current pullback.

The fire on June 10, 2022 at Freeport LNG terminal (see chart below) changed the direction of months of unrelenting upward momentum. Usually, the words “fire” and “natural gas” would increase prices; however, given this is an export terminal, it kept natural gas domestic — limiting exports. European futures had the opposite experience.

This is in stark contrast to when a barrage of bullish factors from late February until June 10th (Ukraine invasion, record exports, no new supplies) caused Natural gas futures for 2023 to surge nearly $3/Dth in just over three months. Very few pullbacks during this stretch, but that all changed with the fire at the Freeport Terminal.  

While the weather has been cooperative, weather patterns are emerging long-term for potential cold weather in the lower 48. Additionally, just this past weekend, gas started flowing into Freeport via pipeline, indicating that the terminal would be ready to start exporting soon. While prices have benefited from these factors, the tide could turn just as quickly if cold weather were to arrive just as exports to Europe could resume. With this type of volatility, prices can move quickly in both directions.