Natural gas heads for second weekly loss, while the EIA reports the first injection of 2025
Prompt month Henry Hub settled 12c lower at $3.98/MMbtu this week, bringing the total losses over the last two weeks to -45c. The Winter ‘25/’26 strip finished the week down 8c at $4.98/MMbtu, and Summer ’26 settled 8c lower at $4.09/MMbtu. This week marked the first storage injection of 2025, several regulatory updates, and new records in Texas solar generation.
The EIA reported an injection of 9 Bcf on Thursday. This was larger than the median estimate, according to a Bloomberg survey of analysts. This is the earliest start to the injection season in at least the last five years, although in 2024, a storage build was reported for the same week, two more withdrawals were reported the weeks after. This week’s injection put US inventories 190 Bcf below the five-year average.
Several regulatory changes and FERC approvals or rulings were announced this week, with the new administration aiming to streamline the regulatory process.
In addition to these items, new records were set in the ERCOT market, with solar generation rising to a record high of 26.32 GW. Solar generation across the US is expected to continue rising as seasonal factors lead to higher capacity utilization and more projects are installed. The continued buildout of solar, wind, and battery threatens gas power generation. This is especially true during peak summer, when new solar and battery projects may displace less-efficient natural gas peaker plants from the power mix.
AEGIS generally recommends clients hedge with swaps in the summer months and costless collars in winter. The recent rise in call skew in both winter and summer months may make costless collars more attractive, even in summer months. Reach out to your AEGIS strategist to discuss this further.
Natural Gas Factors
Price Trend. (Bullish, Priced In) Gas prices have surged to multi-year highs, with the April 2025 NYMEX contract reaching $4.899.
S&D Balance. (Mostly Bullish, Priced In)
Long Range Weather Forecast. (Bearish, Surprise) Current long-term weather forecasts show temperatures are expected to be above average this winter. Although, it is important to note that the accuracy of long-range forecasts can be low.
Super-warm La Niña Novembers have led to mixed December outcomes, ranging from colder-than-normal to notably warmer. The warmest November (2001) was followed by a warm December, while the second warmest (2016) led to a colder December. Historical data groups these into three December outcomes: colder than CWG (2016), near CWG (2020, 1999), and warmer than CWG (2011, 2001), often influenced by a positive Eastern Pacific Oscillation (+EPO). Current conditions show a weak La Niña, similar to 2020 but with notable differences in ocean temperatures. The CWG outlook remains warmer than the 30-year average but cooler than the 10-year average. The NOAA model suggests a pattern resembling 2016, implying a possible cold December and warm Q1 2025, while a warmer December could mean more cold volatility in early 2025.
1-15 Day Weather. (Bullish, Priced In) Two-week forecasts have supported prices lately, with this January being the third coldest of the past 25 years.
Storage Level. (Mostly Bearish, Priced In) The storage level is a bearish priced-in factor due to the high levels of gas in inventories relative to the five-year average. According to the latest EIA weekly natural gas inventory report, the surplus to the five-year average stands at 21 Bcf above the five-year average and 20 Bcf above last year.
Dry Gas Production. (Bearish, Surprise) These are the most critical drivers of gas prices outside of weather. A material increase in either would pressure prices lower and loosen the supply-demand balance. These are also longer-lasting factors that can weigh on prices for years. Since the start of 2024, gas production has fallen sharply, driven by substantial curtailments and seasonal declines in Appalachia. Given low gas prices, producers may continue to curtail gas production until economics improve. A material drop in production could improve storage balances, but if prices begin to improve, there is a large amount of supply that can be brought back to market, which would be a bearish risk. With some evidence that production is now returning to the market, the dry gas curtailment bubble has been shifted to the bearish quadrant. A large amount of production was likely taken offline this year, which is now waiting to come back. Some operators may also have been drilling and completing wells during this time, which are ready to flow gas if economics have improved enough.
Associated Gas Production.(Bearish, Priced In) With oil prices remaining high and additional egress capacity coming to the Permian in the form of the Matterhorn pipeline, associated gas production may continue to grow in 2024. The Matterhorn pipe will send an additional 2.5 Bcf/d to the Gulf Coast, posing a bearish risk to Henry Hub and regional basis prices such as Houston Ship Channel.
Renewables. (Mostly Bearish, Partly Priced In) Renewables remain a perennial threat to gas prices and gas's share of the power stack. Renewable capacity additions in 2023 are expected to set a new record and are now the second-most prevalent source of electricity generation. Still, renewables have proven unreliable at times, which has exacerbated the global energy squeeze as gas usually serves as a flex-fuel when other sources underperform. We think this is priced in, but the effect at the summer peaks on gas generation has some bearish potential.
LNG Outages. (Bearish, Surprise) Feed-gas levels are at their near max capacity, and if there's any unplanned maintenance event or an outage, it might act as a surprise bearish factor for natural gas prices.
Slow Supply Response. (Bullish, Surprise) If production remains near where it is currently and does not grow into winter, this would be a bullish factor for gas prices. Typically, the Northeast region sees higher production receipts in the higher-demand months of the year. Still, due to lower activity levels over the past year, production growth may be more muted.
LNG Schedule. (Bullish, Surprise) With a significant amount of new LNG feedgas demand coming this year and the next few years, if these facilities startup sooner than anticipated it should be a bullish factor for gas prices. One example of this occuring is the recent startup of Plaquemines LNG, which saw feedgas levels reach more than 1 Bcf/d much sooner than anticipated.
Production Front-Running. (Bearish, Surprise) If producers begin to ramp up gas production in advance of the new LNG demand, this could lead to a temporary mismatch between supply and demand and weaken gas prices. The other option would involve producers waiting for a price signal from the market before increasing output.
Hedge Activity. (Bullish, Surprise) Following the sharp rally in January, many producers may have taken advantage of the higher prices and layered in more hedge volumes. This could result in less selling pressure down the curve if they are more adequelty hedged now.
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