Holiday Movies as Natural Gas Fundamentals

By: Chris Amstutz

via GIPHY

The NYMEX natural gas market was not exempt from the craziness of this year. Compared to 2019 price volatility was up 50%, and we recorded the lowest price since 1991 ($1.482 on 6/25). Of the 236 days traded so far this year, 134 of those days traded below the $2.00 mark (the most since the mid-90’s). Even the prompt month January 2021 has fallen like a Griswold ladder, by over $1, to an unthinkable $2.40/MMBtu today. This market has had all the makings of a National Lampoon’s Christmas Vacation. Expectations and plans for natural gas have truly been in “the nuthouse”. It certainly feels like the luck of Clark Griswold is at play. Prices are driven by the fundamentals below and will “light up” our expectations for future years.

National Lampoon’s Christmas Vacation (1989) ranked #55 on the Rotten Tomatoes Christmas List

Natural Gas Dry Production

As the main supply input in the US, this is a classic fundamental that has come to prominence in the last few years. Until this year, natural gas producers had found the strength of “ten grinches plus two”. Production peaked this year in January at a record high 96 Billion Cubic Feet per Day (BCF/D), helping kickstart the oversupply situation. Many have argued there is also an oversupply of How the Grinch Stole Christmas remakes. You’re not “a mean one” to believe the Grinch movies have been in constant decline since the 1960’s original, but don’t be a bearish Grinch, ignoring the fact that natural gas production has fallen to 88 BCF/D today, and is expected to fall further in 2021.

How the Grinch Stole Christmas (1967) ranked #6 on the Rotten Tomatoes Christmas List

Associated Gas from Oil Production

The extraction of natural gas as a byproduct when drilling for oil is a process that has been around since the early 1900’s. As the US has increased oil production in the last 3 years, so has grown the associated gas supply, now up to 25 BCF/D this year. This is the grandparent fundamental of the natural gas world and for this reason we compare to the black and white Miracle on 34th Street (1947) or It’s a Wonderful Life (1946). These movies consistently rank in the top 5 on Christmas movie lists and associated gas production will be a top 5 fundamental to watch in 2021 as oil prices fluctuate.

It’s a Wonderful Life (1946) ranked #1 on the Rotten Tomatoes Christmas List

Liquified Natural Gas (LNG)

The exportation of LNG from the US has been quite the “cotton-headed ninny-muggins” to forecast in 2020, as global demand fell significantly during the pandemic. Nonetheless, this fundamental is relatively new on the scene in the natural gas world and ranks as one of the top yearly demand factors. We compare it Will Ferrell’s Elf ,as it is always in the news/on TV and both have a solid overall presence in their respective fields. LNG exportation has seemingly crossed the tumultuous proverbial “sea of swirly twirly gumdrops”, and has rebounded to 11 BCF/D.

Elf (2003) ranked #31 on the Rotten Tomatoes Christmas List

Power Burn

The burning of natural gas for electricity generation has increased heavily in the last few years as prices have favored it over the use of coal. The confusing name lends no help to those deciding if it is truly a natural gas fundamental or not, but we assure you it is. In the same right, you ARE allowed to question whether or not Die Hard is a Christmas movie. A contentious debate certainly, but there is no debate that the trend of record high Power Burn demand (hitting 47 BCF/D in 2020) won’t be ending any time soon, “Yippie Ki-Yay”.

Die Hard (1988) ranked #14 on the Rotten Tomatoes Christmas List

Natural Gas Storage

Every year utilities across the country store large amounts of natural gas for their customers to use in the winter months, when demand exceeds production. This fundamental has been tracked for over 30 years and is often just different iterations of the same story. Ebenezer Scrooge-like hoarding of gas results in high storage levels (as we have seen in 2020) bringing lower, short-term pricing. This can eventually lead to increased future prices as production slows to regulate the supply gut. Storage can vary year to year just as the movie A Christmas Carol can vary in its remakes. From the Muppets, to Bill Murray, to Looney Toones, to the classic film, this story (and the natural gas fundamental) are timeless and always evolving.

 A Christmas Carol (1957) ranked #29 on the Rotten Tomatoes Christmas List

The Choice Energy Management team would like to wish you a happy holiday season and a much-anticipated happy start to the new year. The full ranking of Rotten Tomatoes Christmas movies can be found here. For more information regarding the energy markets or Choice’s full suite of energy services, please feel free to reach out to a consultant today.

Confidential: Choice Energy Services Retail, LP.