Bad Times At The Natural Gas Bear Camp
What's that sound? Is that a scream?
No, it's just natural gas bears crying because Mother Nature, for the first time in 10+ years decided to finally show a winter that's colder-than-normal.
It's magical what happens to natural gas demand when winter turns out to not be a torching pattern. It's also magical when it just so happens to be the year following one of the worst bear markets on record.
In the latest ECMWF-EPS update, the models are showing the potential of another polar vortex hitting in early March.
If you need help recollecting how many "polar vortexes" that is, it's 3.
Yes, 3.
We had one in January, one happening now in February, and one more in March. I don't know about you, but this may finally be the first time since 2014 that we have had a meaningfully colder-than-normal winter.
Editor’s Note: We have been posting all of the ECMWF-EPS updates for free on our chat.
ECMWF-EPS TDD Table
ECMWF-EPS TDD Chart
6-10 Day
10-15 Day
15-Day
As you can see in the latest 10-15 day outlook, the Alaska ridge returns, which will trap the cold air in the demand regions. The intensity of the blocking pattern is still subject to change, but as it stands today, heating degree days will start to meaningfully push higher into March.
I will explain below what this means for natural gas fundamentals, but remember in our last week's NGF titled, "Natural Gas Storage Is Headed For The 2022 Lows." We said:
I think with storage persistently low and touching the 2022 base, natural gas prices will be biased to the upside as traders gauge how high to push prices to 1) incentivize production and 2) taper off power burn demand.
Coal will be a beneficiary in all of this as I think coal retirement will slow due to higher natural gas prices. We will have to see just how much power burn will be impacted due to higher prices.
Another important point to mention is that unlike 2022 where production exploded into a demand vacuum (no major demand drivers), 2025 will see a major structural demand surge coming from LNG at the end of the year.
Natural gas traders will also have to assess just how high prices can go in the scenario that we don't fill up storage adequately.
In essence, readers who are trading natural gas have to have a bullish bias for the rest of 2025. Unlike the previous years when natural gas prices were expected to be rangebound, I think this year is now favored for traders pushing the upper boundaries of the price limit.
This scenario will be more likely during the summer months when power burn comes into play (vs this winter when it's dominated by weather).
Looking at natural gas prices today, traders are definitely taking that playbook and running hard with it. From a storage perspective (as I will explain below), natural gas prices are trading above the fundamental-implied value. But that's not the issue the natural gas market will have to contend with this year. It will be a question of whether or not we can fill up storage by the end of injection season.
So what's the right price? Let's look at fundamentals.