Evaluating Predicted Stair Stepped Natural Gas Spot Prices and More (2024)

Evaluating Predicted Stair Stepped Natural Gas Spot Prices and More (1)

Natural gas (NG) (NG1:COM) prices climbed from its ultra-scary lows over the past few months, reaching into the mid-to-high $2s. Most recently, the price dropped under $2.5. Summer, near record heat, in parts of the nation, helped push the spot price higher. We continue writing on NG with our last writing, Natural Gas' Hidden Future Of Muted Rising Prices, highlighting the existence of spare capacity, wells drilled, once in use, now idled during the recent production glut. We predicted prices would follow a stair step approach in their return to higher values for the next few years. Guessing the actual height of each stair is and was a dubious task with many unknowns. Like the extreme difficulty and care that a lady in 5" heels must use in safely negotiating steep stairs, our endeavor for calculating precise values requires care coupled with luck. So, with all the difficulties, how close was our precision and what does it mean? Let's go find out.

Our Last Estimates & Theory

Stated above, our last article outlined a price recovery pattern summarized in the next quote.

"Prices, stated above, will be higher in the later portion of 2024, in our view, into the mid $2 region. After 2024, prices will continue at least into the $3+ range with new LNG capacity coming on-line and production increased to balance the markets. What we don't yet see coming is a return to $5 or $10 pricing. It might occur, but at this point, not so likely."

A graph showing the spot price of NG from Yahoo Finance follows:

Evaluating Predicted Stair Stepped Natural Gas Spot Prices and More (2)

Within the fuzzy elements of estimating obtuse entities, the graph reflects a confirmation of our predicted pattern. After falling into the mid-$1 range, the price recovered toward $3, followed by a drop into the mid-to-low $2, our targeted region. The most recent price approximates $2.4.

Natural Gas Balance

A review of the natural gas balance adds investment understanding. Again, from the EIA, we added the natural gas storage graph, which most easily shows the current status of the balance.

Evaluating Predicted Stair Stepped Natural Gas Spot Prices and More (3)

Purposeful production softness brought the balance into check, but hasn't yet returned storage to the five-year average (heavy dark line).

Continuing with a self-created table summarizing a few important parameters, we find that producers cut approximately 6%.

NG Storage Difference (BCF) March May June
2024 675 620 510
Daily Flows Peak Low June
2024 111 104 107

From the above graph, the five-year average gap closed ever so slightly, but, also, during June, production increased by almost 3%. The spot price chart shows the effect of the cut, with the price falling almost $0.50. Price changes are really sensitive.

Marketplace

Next, a review of the marketplace seems in order. From Natural Gas Producers Are Ready To Pounce When Prices Rebound at Oilprice comes this summary,

"Natural gas is currently pricing at or below costs of production,” an executive at an exploration and production company said in comments in the quarterly Dallas Fed Energy Survey released this week."

Apparently, even with incremental production underwater, the dollar plus increase was enough to trigger a significant increase.

Chesapeake Energy (CHK) is an example of one with the abilities to increase on short notice with at least 80 wells ready. Producers now view non-producing drilled wells as reservoirs, an interesting approach.

LNG issues, in particular with the Federal Government's pause on permitting new facilities, reached a first milestone when a Federal Judge in Louisiana ruled the pause unconstitutional:

"[Judge] Cain . . . said the states were likely to succeed in showing the pause contravened the Natural Gas Act and was arbitrary, capricious, and unconstitutional. [and] were "above and beyond its scope of authority.""

Continuing with the marketplace analysis, a good summary reported in March by Dave Messler of Oilprice includes:

  • Drillers are facing a challenging market with historic low prices and oversupply, partly due to El Niño and delayed LNG demand.
  • Chesapeake Energy and other major gas producers are reducing new gas capex by up to 20%, deferring new well production to manage costs and prepare for future demand.
  • The industry anticipates a shift from the current surplus to a potential deficit around 2025-2028, driven by new LNG facilities and increased industrial and power generation demand, offering hope for price recovery and sector growth. “

With prices at ultra-low values, major producers announced major capital cuts at their 2023 year-end reports. Some announcements included cuts up to 20% year-over-year.

Production Returning

We noted above that with price increases, production resumed. EQT Corp. (EQT), the largest producer, notified the market in mid-June that plans to add back the 1 Bcf/d curtailed in February were in place. Obviously, others increased production as well.

Now The Future

Heading back to David Messler, he notes the delicate balance between price and production must be managed. Between now and 2028, approximately 12 BCF/D of increased demand is likely to develop, mostly in the form of LNG exports. The deficit marketplace seems once again just-around-the-corner.

Until then, a recent survey estimated an average gas price of $2.59 at the end of 2024, certainly a price supportive of our step view. This stark increase from the approximately $1.50 average in March bodes better for marginal producers. They predict $3.0+ in 2025 followed by long-term prices in the $4 range. In our view, the $4 long-term average value is low. Much of the production, especially in the Haynesville region, remains marginally profitable at $4. We expect something closer to $5+.

Risk

With risk always present, the primary one remains for marginal producers to remain solvent until 2025 or beyond. It is a delicate balance. Just look above at the significant price change with a 3% production change. And then for investors, they must ask, will new demand really hit? There is political risk with this as well. Notice the deference for business support in exporting NG under the current administration. Yet, the marketplace at a predictable level is intact. We rate NG a short-term hold and a long-term strong buy. And might we add that in every trading entity, a natural price wave oscillates, creating buying and sell points for short-term traders. Perhaps the best time to buy will be in early fall. We suspect that continued weakness through early October persists. Walking the price up the stairs in heels is truly a delicate task, but at the top it will be worth the time and effort. Higher prices, like tall high heels, seem certain.

Patient Tech Investor

I have been an investor for several decades enduring the 87 crash, 2000 crash, and 08 crash. I do use trading systems developed with TradeStation. I have enjoyed the rewards from both buy and hold and trading. My professional experiences includes several decades as a process control engineer. I hold a JD from an eastern law school.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Evaluating Predicted Stair Stepped Natural Gas Spot Prices and More (2024)

FAQs

Evaluating Predicted Stair Stepped Natural Gas Spot Prices and More? ›

Summary. Natural gas prices

Natural gas prices
Depending on the marketplace, the price of natural gas is often expressed in currency units per volume or currency units per energy content. For example, US dollars or other currency per million British thermal units, thousand cubic feet, or 1,000 cubic meters.
https://en.wikipedia.org › wiki › Natural_gas_prices
have fluctuated, reaching mid-to-high $2s due to summer heat demand before dropping under $2.5. Our predicted recovery pattern for natural gas prices includes a gradual increase into mid $2 region through 2024 and potentially reaching a $3+ range thereafter.

What is the spot price forecast for natural gas? ›

We forecast the price will average about $2.60/MMBtu for the rest of 2024 (August–December), which is slightly less than the average of $2.69/MMBtu during the same period in 2023, and we expect the price to average $2.30/MMBtu for all of 2024.

What is the IEA forecast for natural gas? ›

For the full year of 2024, natural gas demand is forecast to increase by 2.5% in 2024, primarily driven by fast-growing Asian markets. Geopolitical instability represents the greatest risk to the short-term outlook.

What will the price of natural gas be in 2024? ›

Recent Contracts
LastChg
Natural Gas Sep 2024$2.2250.006
Natural Gas (NYM $/mmbtu) Front Month$2.2250.006
Natural Gas Oct 2024$2.341-0.002
Natural Gas Nov 2024$2.748-0.001
6 more rows

What determines the price of natural gas? ›

Natural gas prices are mainly a function of market supply and demand.

What is the spot market price for natural gas today? ›

Basic Info. Henry Hub Natural Gas Spot Price is at a current level of 1.83, unchanged from 1.83 the previous market day and down from 2.65 one year ago.

What is the prediction of the natural gas price? ›

U.S. natural gas futures are hovering around $2/mmBtu with a drop in near-term cooling demand and a rise in output keeping buyers away.

What is the future forecast for natural gas? ›

ANZ Research forecast the LNG spot price to drop to an average of $32/MMBtu in 2023 and $23.5/MMBtu in 2024, compared with an estimated $36.8/MMBtu in 2022. The World Bank forecast US natural gas prices could average $6 in 2024. It expected European gas prices to trade at $28 in 2024, dropping from $40 in 2022.

Will natural gas prices go up in the future? ›

Natural gas prices are forecast to be significantly lower in 2024 compared to the previous two years, with a recovery anticipated in 2025. However, prices could be higher than projected due to geopolitical developments, reduced U.S. exports, and adverse weather conditions.

What will natural gas futures prices be in 2025? ›

Recent Contracts
LastChg
Natural Gas Feb 2025$3.4170.066
Natural Gas Mar 2025$3.0610.070
Natural Gas Apr 2025$2.9140.070
Natural Gas May 2025$2.9610.078
6 more rows

How high will gas prices be in 2025? ›

Long-term Gas price prediction for 2025, 2026, 2027, 2028, 2029 and 2030
YearYearly LowYearly High
2025$ 2.11$ 3.90
2026$ 1.829418$ 2.35
2027$ 1.822391$ 2.05
2028$ 1.381528$ 4.44
2 more rows

What is the future of natural gas? ›

We forecast increases in natural gas prices as demand for natural gas grows faster than supply in 2024. In 2022 and 2023, increases in natural gas supply (domestic natural gas production and imports) exceeded the increases in natural gas demand (domestic consumption and exports).

Does natural gas rise or fall? ›

Natural gas is lighter than air, so it will rise and disperse if allowed to vent freely. Although rare, natural gas leaks can be dangerous and result in fire, explosions, injury or death.

What time of year is natural gas the cheapest? ›

Though prices can fluctuate depending on supply/demand fundamentals, natural gas prices are often at their lowest during the fall and spring seasons.

How to calculate the cost of natural gas? ›

Let's say you have a furnace with a BTU rating of 100,000 and your gas bill is measured in MCFs. If one MCF costs $9.00: Divide the price per MCF by 1,028,000 to get the price per BTU: $0.00000875486. Multiply that by 100,000 to get the price per hour you'll pay to run the furnace: about 87¢.

Which state produces the most natural gas? ›

Top Natural Gas Producers:
  • Texas: 24.6% (8.5 trillion cubic feet)
  • Pennsylvania: 21.8% (7.53 trillion cubic feet)
  • Louisiana: 9.9% (3.41 trillion cubic feet)
  • West Virginia: 7.4% (2.54 trillion cubic feet)
  • Oklahoma: 6.7% (2.31 trillion cubic feet)

What is the stock market forecast for natural gas? ›

Natural gas is expected to trade at 2.00 USD/MMBtu by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate it to trade at 2.21 in 12 months time.

Is there a spot market for natural gas? ›

Spot market (natural gas): A market in which natural gas is bought and sold for immediate or very near-term delivery, usually for a period of 30 days or less. The transaction does not imply a continuing arrangement between the buyer and the seller.

Why is the natural gas price dropping? ›

Prices have declined in 18 of the past 22 trading sessions thanks to strong production that has offset demand for electricity to power air-conditioning and kept gas-storage facilities fuller than normal for this time of year.

How to invest in natural gas spot price? ›

4 ways to invest in natural gas
  1. Buy stocks in natural gas companies.
  2. Exchange-traded funds (ETFs).
  3. Master limited partnership stocks (MLPs).
  4. Natural gas futures.

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