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Can Natural Gas Hit $4 in the Summer?

By Antonio FerlitoCommoditiesMay 16, 2023 09:08AM ET
www.investing.com/analysis/can-natural-gas-hit-4-in-the-summer-200638153
Can Natural Gas Hit $4 in the Summer?
By Antonio Ferlito   |  May 16, 2023 09:08AM ET
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Global gas markets are slowly rebalancing, but Russian gas supplies to Europe are expected to remain limited until 2023.

In 2022, European and global gas markets faced a sharp reduction in gas supplies after Russia cut its supplies through European Union pipelines by 80%. This has led to the emergence of a global energy crisis.

Thanks to the pleasant climate, the increase in the export of :Liquefied Natural Gas and the drastic decrease in the demand for gas, European stocks are filled to around 60%. This helped cushion the shock of the pandemic.

The IEA indicated in a report on the gas market that diminishing market concerns coupled with current reserves are grounds for cautious confidence about security of supply. This gives an indication that there will be sufficient gas supply during the summer.

'While forecasts for gas markets in 2023 are encouraging, future volatility cannot be totally ruled out...global gas supply will remain quite tight by 2023 and the global balance is subject to a surprisingly large variety of possible scenarios," says the report.

There are many risks, such as unfavorable weather conditions which can lead to a shortage of LNG and the possibility of a decrease in Russian supplies to Europe. All this could renew tensions on the markets and increase price volatility.

Europe has seen an unprecedented drop in gas consumption of 16%, or 55 billion cubic meters (bcm), during the 2022/23 heating season. This is good news that shows that Europe is becoming more attentive to sustainability.

The study results show that the EU only needs half the level of storage injection recorded in the summer of 2022 to meet the 90% storage target by the start of the 2023/24 heating season.

Liquid natural gas now makes up for two-thirds of the European Union's gas imports, meeting one-third of its gas demand during the 2022/23 heating season. A 25% increase was observed, amounting to around 20 bcm for European LNG imports, while more than 45% of the additional supply comes from the United States. 

Global supply of Liquefied Natural Gas (OTC:LNGLF) (LNG) is projected to increase by just 4% by 2023, which is less than the expected reduction in Russian gas supplies to Europe, so the outlook is not as bad as it seems from appearances.

At the moment, I am checking inventory levels on a weekly basis to evaluate whether to buy gas. Gas supply is currently plentiful due to current record production.

With a summer of drought and extreme temperatures expected, we could see inventories shrink due to higher cooling demand. The first heat waves will probably arrive in June, and that's when I plan to buy natural gas for the summer.

My calculations indicate that natural gas prices could be $4 in the third part of the year if the predicted extreme heat occurs.

***

Author's note: The information and content provided on this site should not be considered as an invitation to invest in the financial markets. The Content is a personal opinion of Antonio Ferlito.

Can Natural Gas Hit $4 in the Summer?
 

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Can Natural Gas Hit $4 in the Summer?

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Comments (6)
ACHARYA RATANSIBHAI
ACHARYA RATANSIBHAI May 16, 2023 8:43PM ET
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1.4
ACHARYA RATANSIBHAI
ACHARYA RATANSIBHAI May 16, 2023 8:41PM ET
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Not $4 will 9.4
Matthew Moran
Matthew Moran May 16, 2023 7:30PM ET
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I must disagree a bit with the weather predictions.  There is now a very good chance that an El Niño will develop this summer (or already has) and that typically brings wet and cooler weather to the southern half of the US, reducing electricity needs for air conditioning.  In the northern half it tends to be warmer, but those areas don´t rely on air conditioning as much (or just don´t have it).  So I don´t see a high demand summer for natural gas, if anything, slightly below normal.  So with continued high production, reduced demand to export to Europe because their storage is already high, it seems NG prices will remain low for the foreseeable future.
Hurricane Tropical Cyclone
Hurricane Tropical Cyclone May 16, 2023 7:30PM ET
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What about, if heatwave all over the world (EU,Asia , not just US), couple tropical cyclones w/ category 4-5 and hope not hits GOM, pipeline maintenance, power Burnout , any breaking news etc, maybe not $4, but $3 its very possible.. in the main time, EU still needs to refill their storage for winter by Nov. 2nd half of year, lots of uncertainty for Ng.
John Balzarini
John Balzarini May 16, 2023 10:35AM ET
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What an article !! As well my son might get at same conclusions !! Something more technical and precise eould help more !! Thanks
Phong Nguyen
Phong Nguyen May 16, 2023 9:46AM ET
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5 to 6 bucks is my prediction and it will hit before September.
Christian Boulais
ChristianB May 16, 2023 9:21AM ET
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Interesting analysis.   Just one detail... It is the brains of the EU who stupidly cut importing natural gas from Russia, not Russia that wanted to stop to export it...
Matthew Moran
Matthew Moran May 16, 2023 9:21AM ET
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Was is really stupid? They were able to reduce demand and import more from the US and agreed, got fortunate with the weather. And now they have near record stocks for this time of year and will have no problem filling the storage for next winter. They have basically shown how to wean themselves off of gas from a pariah state (Russia). Seems like they deserve some credit!
 
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