What is Going on With Natural Gas?

Between November 13 and November 20, the front-month price of natural gas shot up from $2.823 per million BTU (MMBTU) to $3.193/MMBTU, a rather remarkable 13.1% spike in just one week. Since then, the price has settled to about $3.30/MMBTU. The task of predicting the spot price of natural gas in the near future is complicated by this behavior. So the first steps in doing that is to understand why the price shot up and then from November 20 to the present, it zigzagged. This is where we start. First, here is the graph of the front-month future prices of natural gas since January 2023.

Figure 1: The front month price of natural gas in USD per MMBTU

We begin with the rationale behind the November 13 spike. The EIA says that the causes were a sudden cold snap for much of the country together with increased natural gas consumption. Since weather is one of the biggest factors driving the price of natural gas, this is reasonable. Other factors do exist, though. Rigzone explains that, although the amount in storage is above the five-year average, heating demands required withdrawals from the storage that have been larger than can easily be refilled by current supply rates. There are also withdrawals due to both reduced renewable energy output and seasonality. That combination made the market nervous. Here is a graph of the amount in storage.

Figure 2: The amount of natural gas in storage

The price of natural gas then settled, and consolidated in the range $3.20 to $3.40. This is typical market behavior, with periods of trending alternating with periods of range-bound consolidation. There is no way to determine how long the price will remain range-bound, nor which direction it will move once it breaks out of the range. The one thing that is typical is that the longer it remains range-bound, the more extreme the breakout (up or down) will be.

In order to get a handle on the trading prospects of natural gas, we need to look at what is likely to happen with the price of natural gas in the short term. It seems that most publications predict a continual rise in the price of natural gas for all of 2025, an effect of inflation if nothing else. On the other hand, the forecasts for winter are for mild temperatures, and that normally produce a drop in natural gas prices. My opinion is that prices will remain steady to decline slowly for the first quarter of 2025. But after that, the president-elect has said that, once inaugurated, he will immediately permit oil and gas drilling to increase, which will begin to increase the amount of natural gas available, and cause prices to drop. (The lag time between the permission to drill and the appearance of more natural gas will be roughly two months.) The wild card in the game is how much of that surplus will be taken by LNG shipments to Europe. (China’s economy is, at this point, becoming less of a factor.) But it is likely that \America first” will pull back on too much LNG exported. Global prices of natural gas will likely continue to rise slowly or stabilize during 2025, depending on how much US natural gas is exported.