Spot price
We can see on the graph below that the US NG Henry Hub spot price was traded at USD 4.423($ per Million Btu) the 2018-12-06 at 09:01:11. As we can observe here, the price has risen since the beginning of November. As seen last time, we know that NG is a very seasonal commodity. Since winter has hit the US, it is normal to see these higher prices: demand is high. We can also compare with the weather temperature from September to see the correlation (see weather 2ndgraph below).
Beginning of October, spot price was at closing time 3,110$/BTu.
Beginning of November, spot price was at closing time 3,293, meaning a +5,88% increase. If we compare to now (4,423), it is an increase of +34,3% from 1stof November + 42,22% since 1stof October!
We can observe a sudden ‘’Wile.E coyote’’ moment the 15thof November, the actual highest November pick in the US, where it was reported to be at 65F (18C) a sudden hot day. It shows how volatile this commodity can be looking at the weather.
Fahrenheit to celsius calculation : (32 °F − 32) × 5/9 = 0 °C
Or here directly: https://www.rapidtables.com/convert/temperature/fahrenheit-to-celsius.html
AVG US :
October : Orange : 11c/ blue : -5c/ braun : 26c / gray : – 25c
November :Orange : 3c / blue : -10c / braun : 18c / gray : -37c
Left to right: September and October heat map US 2018.
For today’s weather, available here: https://www.weathercentral.com/weather/us/maps/current_temperatures.html
What about other NG markets?
We can observe than the US gas is lower than European and Asia gas: not surprising since we know that US benefits from its large Shell gas supply since 2009. Asian gas LNG is the highest since most of its cost is due to the LNG transformation and freight costs. If we take Henry Hub as the benchmark, both EU and Asian gas are traded at a premium: 4.13$/BTu and 7.52$/BTu respectively. We can observe an abnormal rise in September in Europe: this was due to Outages in the North Sea that lasted 4 weeks, decreasing supply, now it has come back to normal. Something that we can also observe is both Asian and European gas seem to be in a constant positive slope compare to US, which seems to react more to seasonality (high in Oct-nov-dec-jan, lower the rest of the year).
Forward curve
The natural gas forward curve below shows the latest closing prices for the 24 future natural gas contracts. For the month of December 2018, the spot price equals to USD 4.46 per mmbtu (closing price on December 4th, 2018, available at: https://markets.businessinsider.com/commodities/historical-prices/natural-gas-price/usd) and is lower than the current forward price which is equal to USD 4.602 per mmbtu (forward contract January 2019. Contract expiration date: December 27th, 2018. Available at: https://bluegoldresearch.com/forward-curve).
Currently, natural gas market is in contango and the forward curve is upward sloping. This means that the forward price might increase over the cold months.
From the beginning of the spring months (March 2019), the natural gas and liquefied natural gas market will be in backwardation because of the decrease of the forward price. The factor that makes the depreciation of the forward curve is the weather data which shows some future warm temperatures above the normal level in the US for example.
If we compare the current forward price (January 2019) with the one presented in the previous bulletin (USD 4.53, bulletin no. 2 – “The rally of LNG and NG”), we notice that the current forward price is higher, and still higher than the spot price.
We might conclude and recommend selling natural gas and liquefied natural gas during the backwardation period which should arrive very soon.
https://bluegoldresearch.com/forward-curve
The winner of November 2018
Natural gas was considered as the best performing commodity in terms of forward price. Indeed, the future price of this commodity climbed at 41.1% for November 2018. The highest future price recorded in November had amounted to USD 4.837 per mmbtu. This commodity has not recorded a high future price such this one since February 26th, 2014.
The factors that pushed up the future price were the low storage of NG and LNG, the cold weather forecasts and the record exports of NG and LNG.
Inventory levels
As we can see on the inventory level’s graph, on November 21st, the actual inventory level was lower than the forecasted level. The effect on the price was a bullish effect because of the high demand. Most of the time, this deficit of the inventory level might occur because of a non-linear demand, which increases during the cold weather periods.
The difference between the last two reported inventory levels (Nov 21st, 2018 and Nov 29th, 2018) was that the actual deficit is lower than forecasted, which pushed up the spot price of NG.
The unit used in this graph is in “the number of cubic feet of natural gas”.
https://www.investing.com/economic-calendar/natural-gas-storage-386
Creation of a new hub in Asia
Since more than one year, there is a rumour about the future creation of a hub in Asia. Actually, it is kind of a non-sense that in Europe work two gas hubs, the TTF and NBP and in United States the Henry hub so why not establish one or more in Asia?
The most advanced hub initiatives are in Singapore, Japan, and China. A number of institutional and structural requirements needed to create a competitive wholesale natural gas market. Six requirements put forward by the IEA “International Energy Agency” were settle.
The institutional requirements were as follows:
- A hands‐off government approach to natural gas markets. An independent antitrust agency who will regulate the hub.
- Separation of transport and commercial activities.
- Wholesale price deregulation. Letting the market fix by itself the price and not the government.
The structural requirements were as follows:
- Sufficient network capacity and non-discriminatory access to networks.
- Competitive number of market participants Gas market requires a number of gas suppliers and traders with competitive market shares along with multiple producers and buyers of gas.
- Involvement of financial institutions.
Hence, by referring to the requirements above, which of the three following countries would be the best to host the Asian hub, Singapore, Japan or China?
Sources
Natural Gas Forward Curve, 2018. “Henry Hub Natural Gas Futures Price”. Bluegold Research (online). Consulted on December 5th, 2018. Available to the following URL: https://bluegoldresearch.com/forward-curve
SAEFOND, Myra P, 2018. “Natural gas leads commodity gainers in November, but oil prices suffer the biggest losses”. Market Watch (online). December 1st, 2018. Consulted on December 5th, 2018. Available to the following URL: https://www.marketwatch.com/story/natural-gas-leads-commodity-gainers-in-november-but-oil-prices-suffer-the-biggest-losses-2018-11-30?siteid=rss&rss=1
GONZALES, Leticia, 2018. “January Natural gas Plunges as Warming Trends Traders’ Attention”. NGI’s daily gas price index (online). December 3rd, 2018. Consulted on December 5th, 2018. Available to the following URL: https://www.naturalgasintel.com/articles/116659-january-natural-gas-plunges-as-warming-trends-finally-catch-traders-attention
U.S. Natural Gas Storage. Investing.com (online). Consulted on December 5th, 2018. Available to the following URL: https://www.investing.com/economic-calendar/natural-gas-storage-386
UK GAS-Prices rise on Norwegian supply disruptions https://af.reuters.com/article/energyOilNews/idAFL1N1V7057, consulted December 2018
averagetemp-monthly-cmb for 2018-10-00 | NOAA Climate.gov https://www.climate.gov/maps-data/data-snapshots/averagetemp-monthly-cmb-2018-10-00?theme=Temperature, consulted December 2018
Pubdocs.worldbank.org
http://pubdocs.worldbank.org/en/451911543968504757/CMO-Pink-Sheet-December-2018.pdf, consulted December 2018
Calendar Monthly Weather Forecast – weather.com
https://weather.com/weather/monthly/l/Calendar+USID0448:27:US, consulted December 2018
Plus500 WebTrader
https://app.plus500.com/trade/usa–g, consulted December 2018