Natural Gas Set To Rise Through 2022

Published by Anthony Di Pizio

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The Pandemic and The Recovery

The COVID-19 pandemic caused widespread global disruption to economies across the globe and the energy industry was not exempt. Prices were erratic, bankruptcies spiked, projects were thrown offline and demand suffered a contraction as entire populations ground to a halt. 

As a result, NatGas prices fell to record lows in the $1.40's/MMBtu (British Thermal Units) which was an acceleration of a cyclical price decline that was already in motion. Combined with uncertainty about the future, this was enough to see many major projects shelved or delayed, for example Australia's largest untapped conventional gas resource Browse, in Western Australia. 

The US Energy Information Administration (EIA) expects prices to rise into the American and European winters of this year, and continue firming in 2021 as a result of reduced production and demand returning to normal.

The NatGas 2 Year Price Cycle

Since 2009, Natural Gas prices have been fairly predictable from a timing perspective moving within cycles lasting approximately 2 years from peak to trough. 

Lows have been marked in 2009, 2012, 2016 and now 2020;

Highs have been marked in 2010, 2014, 2018 and so we predict a move back to the top of the range sometime in 2022. As per the below chart, this process has already begun with an 80% rally in prices since hitting the 2020 lows. 

The pandemic has introduced a new dynamic into this equation but the stage is set for firmer prices considering demand should return to normal levels and production may take some additional time to catch up. 

US Energy Information Administration Projections

The US EIA released several revised projections in August for prices, demand and also supply. 

Some notable points:

Prices

• The EIA expects that Henry Hub spot prices will average $3.14/MMBtu in 2021
• Price increases projected across the board in residential, commercial and industrial sectors
• The industrial sector will see the largest price increase

Demand

• Total 2020 US consumption down 3% on 2019, with the largest decline in the industrial sector
• Total 2021 decline in consumption expected to be around 4.5%, although this is driven by the electric power sector as residential, commercial and industrial consumption is slated to grow
• Fall in production expected to be larger which will support prices

Supply

• Marketed production expected to be down 5% for 2021
• Dry gas production expected to be down 5.2% for 2021
• As prices steadily rise, further production should become more attractive from April 2021 onward

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