Energy Management

Webinar Analysts: 2022 Outlook, Natural Gas and the Economy

Energy Market Intel Webinar Series
2 min read

During the January 2022 Constellation monthly Energy Market Intelligence webinar, the commodities management group (CMG) team covered the winter forecast, economic outlook, gas and power market fundamentals, and the near-term and longer-term pricing action.

Weather Outlook

After a very warm start to winter 2021/22, with December clocking its second warmest result since 1950, January saw winter arrive in some force.  This January will be the coldest in seven years and the arrival of cold air caused a strong uptake in demand for gas in the residential and commercial sectors.  The remainder of January continues to look colder-than-normal in the Midwest and Northeast with two cold shots hitting early this week followed by another over the coming weekend.  The month of February appears to be easing with a more zonal flow and the first week or so appears to be milder.  The bigger question is, does the upper atmospheric flow again become more variable and allow cold air to move into the lower-48 during the month of February, or is winter winding down early?

Economic Outlook

Constellation Chief Economist, Ed Fortunato, covered the general state of the economy with the advent of the new year.  Fortunato focused on the Fed and the challenges it faces relative to battling inflation and the need to do so while not putting the brakes on the economy and stalling into recession.  Fortunato posited that the Fed has a reasonable chance of performing a “soft landing” for the economy, tamping down inflation while keeping unemployment low, and preserving modest economic growth.

Natural Gas 2021 vs. Now

The CMG team reviewed the year-over-year differences from January (2021) of natural gas production, storage, rig counts, and pricing action.  After noting those differences, the team looked at current storage inventories, and discussed the important and ongoing role of exports of liquefied natural gas and pipeline exports to Mexico and Canada on the U.S. domestic gas and power markets.

2022 Outlook

The CMG team reviewed the recent pricing action in the market for power and natural gas and discussed the concept of “fair value” relative to historic gas and power prices.  The ten-year average (unadjusted for inflation) price of the NYMEX natural gas contract settlements is $3.07/MMBtu.  The CMG team pointed out that the five-year average (2023-2027) price of NYMEX natural gas is approximately $3.18/MMBtu, nearly equal to the past ten-year average price and as such, should be of great interest to end-users.  The team talked about approaching the calendar year 2022 market on a more opportunistic basis as it is trading at a premium to the ten-year average.

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