Looking to the Futures

The front-month natural gas futures contract (/NG, currently set for February delivery) jumped nearly 10% from Friday’s close to the start of trading Sunday evening, reaching $4.369. Front-month natural gas had not traded above $4 since January 2023, except for a brief spike at the end of December, possibly fueled (pardon the pun) by short-covering. Cold weather and LNG exports contributed to this week’s surge, while part of it could be sympathy with crude oil, which traded at six-month highs close to $80 this week.

The Arctic front has meteorologists forecasting lows around zero across the Midwest, while Southern states will be on the lookout for snow next week. It will bring the second major cold front of the year and likely spur further draws from storage, plus possible crimps in supply from frozen wellheads. Thursday’s EIA Natural Gas Storage report had a draw of 258 Bcf, in line with forecasts. Natural gas in storage is 3,115 Bcf, 111 Bcf below last year but 77 Bcf above the five-year average. Bulls appeared to be disappointed by the news, with the contract dropping by about seven cents on the release.  Following the selloff, the contract rebounded sharply to over $4.30 in the afternoon.

Contributing to long-term demand is LNG shipping to Europe and Asia. Shipments are increasing over time as more projects come online. Louisiana’s Plaquemines LNG terminal made its first shipment at the end of last year, with additional capacity expected to come online this year to bring its total capacity to 2.6 billion cubic feet per day (Bcf/d). The Corpus Christi LNG terminal is expanding capacity on its Stage 3 plant as well. All told, the Energy Information Administration expects export capacity to reach 15.4 Bcf/d later this year, with additional capacity for projects under construction to bring total export capacity to 21.2 Bcf/d. Current LNG export capacity is around 13.5 Bcf/d. For comparison, domestic consumption across the full year averages around 90 Bcf/d.

Feeding all this demand, new pipelines continue to come online in the US. In 2024, major projects completed last year include the Mountain Valley pipeline and the Matterhorn pipeline. The Mountain Valley project delivers 2.0Bcf/d from Marcellus Shale in West Virginia to a compressor plant in southern Virginia that connects to pipelines up and down the Eastern Seaboard. The Matterhorn carries 2.5 Bcf/d from the Permian Basin in west Texas to the Houston area, where it supplies LNG exports and power generation.

Speaking of power generation, hotter-than-normal temps later this year could also spur demand. Natural gas currently supplies around 43% of domestic electricity generation. It currently has a greater share than renewables and nuclear combined. Given its dominant share of the energy supply, higher demand for air conditioning should drive demand.

The rolling front month contract is trading above the 9-, 20- and 50-day SMAs. The MACD is positive and increasing while RSI is approaching overbought levels but hasn’t reached 70% since May. The contract has been trading around the 2-std dev Bollinger Band since the week before Christmas, which coincides with a bullish cross of the 9-day over the 20-day.

Major economic reports, trading events, and news items that could potentially impact specific futures markets:

S&P Global Services PMI for December (interest rates and stock indices)

Factory Orders for November (interest rates)

USDA export inspections (grains and cotton)