Evidently, investors and consumer markets (power plants, etc.) were too optimistic earlier this year, expecting the U.S. to have a prolonged heat wave this summer that isn’t happening. Global warming took a vacation this year.
Higher-than-normal temperatures, like during a heat wave, causes people to run their air conditioning at full tilt, straining power supplies. Remember the past years of rolling brown-outs in California? Similar situation. So, power plants bought future deliveries of natural gas in higher volumes than they would have bought if they thought summer temperatures this year would be about the same as last year. Instead, they were told by some forecasting meteorologists that the U.S. would have a heat wave, so they over-bought. To unload the deliveries of natural gas they don’t need, they slap a blue-light special price on it to find a buyer quickly. According to the Wall Street Journal (“Natural-Bas Traders Bet Heat Wave Will Fizzle”, July 17, 2019), the current prices for natural gas hasn’t been this low in July since 1999.
Hence the drop in price to a paltry $2.33 +/- per mcf natural gas price we’re seeing on the NYMEX right now. This is just old fashioned, Economics 101. Supply is greater than demand, so prices plummet until supply and demand get in sync again. All this, despite increasing LNG exports.
The bottom line is that owners can expect to see smaller revenue checks due to low natural gas unit price until probably their December check, the month most companies will distribute October gas sales revenue to royalty owners and others. October realistically marks the beginning of winter months sales, giving a slight bump in natural gas price for those cold months. That said, the U.S. Energy Information Administration predicts that total gas consumption for all of 2019 will average 84.6 Bcf per day, a 3.1% increase over 2018. After that, the EIA predicts gas consumption in 2020 to no increase above 2019 levels at all. To see the full story, visit https://www.eia.gov/outlooks/steo/report/natgas.php.