Natural Gas Prices Squeezed On A Polar Vortex That Never Materialized, So Why Are Prices So High?
Natural gas prices remain elevated despite the March polar vortex severely disappointing to the downside. In our last week's NGF titled, "Bad Times At The Natural Gas Bear Camp." We wrote that the incoming polar vortex (projected at the time) could send natural gas storage to 1.45 Tcf by early April.
Editor’s Note: We have been publishing the ECMWF-EPS weather updates for free on our chat.
Well... so much for that forecast. Weather models proceeded to trend materially more bearish over the weekend and the latest update shows no signs of a significant cold event on the horizon.
How much is the delta?
1.45 Tcf versus 1.615 Tcf
In our latest storage projection, we see natural gas storage now finishing at 1.615 Tcf. That's a 165 Bcf revision.
The bearish revision is largely driven by the massively disappointing 3/14 week that was projected to show meaningfully higher heating degree days.
As a result of this revision, natural gas storage will remain well above the 2022 lows.
So despite the bearish revisions, why are natural gas prices trading only ~5% lower from the peak?
As we wrote in our NGF on Feb 11, we said:
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 year is not your typical rangebound year in natural gas trading. Why? Because of this graph right here.
The above chart illustrates net supplies to the market. LNG and Mexico gas exports have structurally increased since last year, so despite the meaningfully higher production y-o-y, net supplies to the market are actually flat y-o-y.
LNG/Mexico Gas Exports
And what readers have to keep in mind is that there's more LNG export demand on the horizon by year-end.
Source: S&P
So unlike 2022 when production grew relentlessly into a demand vacuum, there's a demand bump at the tail end of all this, so traders will have to gauge just how high to push prices to incentivize more production.