June 7 2024 Market Update

Happy Friday

Quiet day.  Like most Fridays, traders don’t want to rock the boat if their books are settled for the weekend.

The NYMEX July front month traded up to $2.899 at 8am, then traded down to $2.791 by 9am and then back up to $2.902 by 10am.  Then a slow crawl up to $2.94 in the afternoon. This says to me that it is a bit thin at NYMEX.

Looking at the EIA Weekly Natural Gas Update published yesterday, Total US supply was down .7 Bcf/d for the week ending 6/5 but demand was up .1 Bcf/d.  This would explain some of the strength at NYMEX

Looking back to the data from the week ending 5/22, the key supply difference is the dry production is higher now.  Producers have been responding to higher prices by increasing production.  Look for this to be a ceiling to huge rallies. We can still go up, but production will respond.  One key demand difference is in LNG demand. With the Freeport LNG terminal back up and running, LNG demand is up.  That being said, it won’t continue to rise as LNG terminals are running at capacity now.  We need to wait for next year before more facilities are completed and begin exporting.

The other key demand difference is power demand (using natural gas to generate electricity).  The week ending 5/16 saw a daily demand of 31.6Bcf, but this week’s report saw a demand of 36Bcf.  Not surprising then that longer term forecasts are looking warmer so fair to say that electricity demand season is here. 

There are two interesting articles today in the Washington Post relevant to this point.  The first is about a ‘heat dome’ over the southwest US.  Basically, huge heat wave that will require a lot of air conditioning.  Remember that they cannot turn on more wind or solar, so they turn to natural gas generation.  This is short term demand, which will affect the summer strip, and is very likely responsible for a large part of our price rally at NYMEX this week.

The second article is about new nuclear power in the US.  Basically, we need more baseline electricity (both for cooling demand and for data centers), which is long term demand and will affect next year and beyond.  The US government is promoting construction of new nuclear to address this demand.  However, there has been a lot of corruption in this sector which has impaired progress. For example a scrapped project in South Carolina that resulted in a $9 billion loss.  A great quote from the article, “Federal prosecutors in 2020 would declare that project a cauldron fraud as they secured prison sentences for company officials.”

When you think you are having a bad day, just be thankful that you are not a part of a ‘cauldron of fraud’ during a heat dome.

The takeaway for us is that natural gas will be exported (via LNG) and domestically used to create electricity, both in the short and the long term, all of which will offer a solid floor for prices and production. 

Stay cool and have a good weekend. [WFG]

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