Looking to the Futures: Natural Gas at New Highs

Low inventories drove natural gas prices to their highest level since 2008, while above normal temperatures are putting additional stress on natural gas supply. Russia continues to restrict countries from natural gas that are not willing to pay in Rubles. Foreign demand is high for U.S. based natural gas. Droughts in western parts of the country are causing a reduction in hydropower. Domestic demand for nat gas has decreased in the lower-48, yet natural gas production is up in the United Sates according to recent EIA data.

Natural Gas demand from energy providers is expected to increase next week as forecasts project above average temperatures. The National Oceanic and Atmospheric Administration reported last week that hotter than average temperatures are expected on the East coast from May 30th to June 3rd.

The Edison Electric Institute reported last Wednesday a significant jump in electricity output.

The total U.S. electricity output in the week ending May 21 increased +10.9% y/y to 79,907 GWh. Cumulative U.S. electricity output increased +2.8% y/y to 4,092,078 GWh in the 52-week period ending May 21.

Russia has maintained their position that foreign buyers will be required to pay for its natural gas in rubles through a special foreign currency account by the end of the month. Russia has ceased nat-gas shipments to Poland, Bulgaria, and Finland after their refusal to purchase natural gas in Russian currency. President Putin has created this purchasing stipulation for countries that are deemed "unfriendly". This could put additional pressure on exports of Russian natural gas and hurt the supply side of energy markets.

Foreign demand for U.S. natural gas remains strong according to BNEF data. Gas flows to U.S. export terminals increased +35.% y/y to 13.426 bcf based on the BNEF report released last Wednesday.

Hydropower production is projected to drop as droughts persist in the western part of the United Sates. Rivers and reservoirs are seeing lower flow levels and Lake Mead reservoir recently fell to its lowest level on record.