Seasonality

2020 has been as anomalous as it can get for energy markets, but that’s especially the case for the LNG sector, which was battered by COVID-related demand destruction. U.S. export volumes, in particular, experienced wild swings this year, going from steady increases and close to 100% utilization over the past few years as new export capacity was added, to operating at barely 30% of capacity this past summer as national lockdowns decimated demand and led to historically low gas prices abroad. Contracted cargoes were canceled en masse for the first time since the U.S. began exporting in 2016, amounting to over 500 Bcf between June and September that was pushed back into the U.S. natural gas market and into storage. But these events only exaggerated what was already a growing risk; with each new train being commercialized, domestic markets are increasingly exposed to the demand swings and other fundamentals in the export markets it serves. Today, we look at how seasonal demand patterns in the U.S.’s primary destination markets could translate to increased volatility at home.

The New York market for residential and commercial heating oil is traditionally tight in the winter months when demand exceeds local production and supplies are supplemented from storage and inflows/imports from outside the region. Coming into winter this year inventory levels were above normal for the time of year and market prices are in contango (a condition where future prices are higher than today) – encouraging further storage. Today we explain how the result is an extension of traditional seasonal storage trade opportunities and a shortage of available inventory capacity.

For decades natural gas flows have moved to the huge Northeast demand region from the Gulf, Canada, Rockies and Midcontinent.  Now those flows are being reversed by the Marcellus and Utica plays that will soon be producing more gas than the Northeast can use. How do the pipelines that serve the region deal with this transition commercially?  Operationally?  Physically?  Today we will explore these questions and consider several terms that have become all-important in this upside-down gas world – backhauls, reversals, and null points.

The shale revolution has done away with natural gas price volatility, at least for now.  And that has been a bad thing for natural gas storage.  Merchant storage facilities make most of their money on either seasonal gas price differences or short-term price fluctuations, or both.  Unfortunately, the oversupplied market has flattened out prices, removing the primary source of storage value.  But there are other ways of extracting value out of natural gas storage. Today we explore several of these strategies.

September NYMEX natural gas closed up a nickel yesterday at $2.96/MMbtu. The January 2013 contract closed at $3.537 – a winter summer spread of $0.57/MMbtu, but the average seasonal spread in the futures market has fallen from $0.62/MMbtu just two years ago to $0.39/MMbtu this week. There was a time not that long ago when the winter-summer spread was measured in dollars.  Now it seems to be fading into oblivion. Today we search for signs of seasonality in the forward curves.