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January 13, 2022

Top Six Natural Gas Market Impacts of 2021

By Jeff Bolyard, Vice President, Commodity Strategy

This post by Jeff Bolyard, Vice President, Commodity Strategy, is featured in our recently released January 2022 Monthly Monitor, which includes articles and analysis for the natural gas, electric, crude oil, and sustainability markets. To read the full newsletter, click here. To sign up for the Monthly Monitor distribution list, click here.

When reminiscing about the energy markets in 2021, I found myself with an extensive list of items that significantly changed the future of energy as we once knew it. I’d like to highlight the top six things on my personal list that I believe has either challenged or changed the direction of natural gas in 2022 and beyond:

1.    Bipartisan Infrastructure Package (BIP)

Among the dozens of energy-related provisions, the BIP law signed in November threw a financial lifeline to existing nuclear power plants, allowing them to remain open–and profitable. This will relieve some of the increasing pressure on natural gas to fill the growing gap of peak demand generation exposed by the reduction of coal, as well as the growing but intermittent production of renewable sources of energy.

2.    Winter Storm Uri

This deep freeze weather event in February, which left millions in Texas without electricity and set new spot price records in excess of $1,000/MMBtu, shed a light on the interconnected risks within the natural gas and power markets. It brought awareness to regulators around the need to modify and coordinate in an evolving energy space to provide reliable and affordable energy in the future.

3.    Weather Around the Globe

A cold end to last winter left Europe, Asia, and Japan low on gas storage and competing for natural gas molecules all summer long. This culminated in December spikes up to $58/MMBtu in Europe (10-12 times the Henry Hub price), while U.S. LNG exporters maximized all they could to profit on the international price, exporting over 13 Bcf/day in late December–an all-time high. And in case you missed it, the U.S. natural gas market no longer operates as an island and international supply, demand, and pricing will continue to impact energy prices domestically.

4.    Extremely mild weather in Q4

September, October and November 2021 weather in North America combined to be the second warmest three-month period since 1880, according to the National Oceanic and Atmospheric Administration (NOAA), while December is poised to fall into the top 10 ranking once final data is known. This dodged bullet of weather helped the U.S. avoid a potentially dire situation (see #5 below).

5.    Domestic Nat Gas Storage Levels

Yet again, the status of storage proved to be a leading indicator of the seasonal price movement for natural gas. As 2021 progressed, the year-over-year inventory flipped from a surplus of 182 Bcf in January to a deficit of 608 Bcf in mid-September before extremely mild weather in Q4 allowed the deficit to close and is currently just 212 Bcf behind last year. The result of this recovery in storage inventory levels on the January 2022 NYMEX was a $2.50/ MMBtu price drop (high on 10/5/21 of $6.52 versus the NYMEX last day settle of $4.024 on Dec. 28).

6.    Flat Production of Natural Gas

In 2021, U.S. supply failed to follow the same growth pattern of the previous decade and remained relatively flat until November, despite prices significantly rising year-over-year. Producers were steadfast in their determination to conserve cash, reward stockholders, and eliminate debt in 2021–a collective move that was visible in the lack of production growth most of the year.

These market-shifting factors, among many others, resulted in unprecedented volatility in the natural gas market in 2021. So, what does 2022 have in store for natural gas?  Many major producers have announced plans to increase capex in 2022 by 20-30%, on average, over 2021 capex, with projected production growth once again on the horizon. There is also the potential passage of some version of the Build Back Better legislation, which would have a profound impact on the speed at which the clean energy transition may occur.

The combined potential of a production tax credit for hydrogen, major incentives for new technologies (including carbon sequestration), and a potential methane emission fee on natural gas would speed up the green train. Conversely, continued delay or failure of this second major piece of federal legislation, combined with majority control of either the House, Senate, or both in the fall election, would put the clean energy transition on a much slower pace and impact the supply, demand, and natural gas prices over the next decade.

Unless you are willing to allow an uncertain future to determine your natural gas price and risk destiny, I recommend taking a longer-term perspective on your strategy. Whether that will be longer-term traditional supply deals or shifting over some portion of your supply to Renewable Natural Gas or Certified/Responsible (low methane emission) production, Edison Energy can help tailor a strategy that fits your needs.

Contact Edison Energy today to learn more!

Jeff Bolyard

Vice President, Commodity Strategy

I work with our clients and the Edison supply team to develop procurement strategies for energy commodities and match the strategy to the risk our clients wish to keep or shed.

Prior to my various roles at Edison, my broad experience while working for a FERC regulated interstate pipeline, my time at a deregulated marketing company, and my exposure to purchasing physical production has enabled me to understand the complex nature of the energy market and interpret the signs of this constantly changing market for our most complex clients.

Educational Background

B.A. in Accounting - Mount Vernon Nazarene University