Why Natural Gas Prices Keep Falling despite the Onset of Winter



Natural gas prices

The January 2018 US natural gas futures contract price settled at $2.74 per MMBtu (million British thermal units) while the Henry Hub natural gas spot price was $2.71 per MMBtu when the market closed on December 18. Henry Hub is 9 cents under the $2.80 per MMBtu recorded on December 11.

STEO report

The most recent “Short-Term Energy Outlook” (or STEO) was released on December 12 by the EIA (Energy Information Administration).

In the STEO, the EIA predicts the Henry Hub spot price to average $3.12 per MMBtu in 2018.

In 2018, US natural gas consumption and overseas trade are expected to increase. The EIA attested in its STEO report that this improved forecast has paved the way for higher average Henry Hub projections for 2018. The estimated Henry Hub reading is approximately 4.0% more than the $3.01 per MMBtu estimate for 2017.

Weather forecast

US weather in the coming months is expected to be largely impacted by La Niña, which is expected to bring in colder-than-usual temperatures in the northern states. However, the southern states are expected to see warmer-than-average temperatures.

Despite winter setting in, US natural gas prices seem to be on a downward trend.

Energy companies like Chesapeake Energy (CHK) and Chevron (CVX) may be hit hard in terms of profitability with weak natural gas prices.

Effect on coal producers

Coal becomes the preferred fuel for utilities when natural gas prices are strong. Likewise, natural gas is preferred when its prices are low.

Peabody Energy (BTU) and Cloud Peak Energy (CLD) are some of the coal (KOL) producers that may see a drop in their market shares when natural gas prices are relatively low.

Continue to the next part of this series to understand the connection between crude oil price and coal.

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