Natural gas volumes are also ramping up to meet domestic demand and the LNG export market. All US LNG export facilities are at full capacity so new operations need to get approvals. The industry has on the drawing board potential to more than double the current 14-15Bcf/d of capacity. The current high prices make this attractive to do but operators need long term commitments to justify the high capital costs.
The EIA forecasts that natural gas production in the US will grow by 0.72Bcf/d in May (see Chart #29 again) to 90.8Bcf/d. The biggest production rises are expected from the Haynesville, the Appalachia area and the Permian.
Storage right now is below the five year average and is not refilling as it has in the past due to the rise in LNG export volumes. Last week 53Bcf were added to storage (Chart #32) and this was just above the five-year injection rate of 44 Bcf (Chart #33). The problem is that storage is 16.8% below the five-year average and 22.8% below last years storage level. That is why NYMEX and AECO prices are staying at high levels. NYMEX last week traded at US$6.47/mcf and AECO at C$6.23/mcf. These are fabulous prices for this time of year and why natural gas stocks have been great performers.
The price of natural gas is now quite overbought and speculators are heavily involved (Chart #34). This is a recipe for a quick reversal if there is a market disruption or demand is curtailed by weather events (a cooler summer than forecast or the recession hits and lowers demand materially).
We like natural gas for the long term and see strong demand as we transition to renewables. However, a recession will hit this area just like it would hit crude oil. So be patient and wait for the next low risk entry point. In March 2020 we sent out a long list of Action Alert BUYS with a focus natural gas stocks and we believe such a window could occur during late Q3/22. Patience for now.