Morton Natural Gas Update
With the winter heating season fast approaching, we wanted to give an update on the natural gas market and what Morton is doing in response to increasing natural gas prices.
What is causing the increase in natural gas prices?
Natural gas prices in the US are mainly being driven higher by the price of liquefied natural gas (LNG) in foreign markets such as Europe and Asia. The US continues to maximize LNG exports to these markets where prices have surpassed $ 50/Mcf (1 Mcf = 1,000 cubic feet) and recently settled below the “soft ceiling” price of $ 32/Mcf which is the price where natural gas to oil switching can economically occur overseas. These prices have been 4–6 times the price in the US. There is currently no limitation placed on LNG exports other than the maximum limit by capacity so this will continue to put pressure on US prices to increase.
For the US market, the current natural gas storage levels are well within the five-year average range. October temperatures remain mild with no freezing temperatures forecasted for most of the Midwest through at least October 30th. This will allow storage refills for at least the next two weeks to bring the amount of natural gas in storage closer to average. Storage volumes along with weather will continue to have an impact on prices.
What is Morton doing to protect against rising natural gas prices?
To protect against large spikes and rising natural gas prices, we have hedged to get a fixed price on 60% of our estimated monthly volumes from November ‘21 thru March ‘22. In addition, we have storage that will protect another 10-15%. We continue to monitor the situation daily and anticipate hedging another 10-15%. It is important to note that we do not want to hedge 100% of our estimated monthly volumes because warm weather could cause us to have to sell high priced natural gas at a loss if we use less than our estimated monthly volumes.
Update on Polar Vortex Pricing Event (Feb. ’21)
We all remember the painful pricing impact from February ‘21 due to the polar vortex. The Federal Energy Regulatory Commission (FERC) market manipulation investigation is ongoing. We anticipate it will likely be sometime early to mid ‘22 before we receive those findings. It is possible that fines, penalties and/or other damages could be assessed to suppliers as a result of this investigation. We will have to wait for the results to determine what, if any, other action or legal recourse is necessary to recover natural gas costs during this event. None of this will be resolved quickly but we will keep pushing for answers and resolution. We will provide critical updates as they are available.
How will you be affected?
We anticipate that increasing natural gas rates for Morton could potentially increase the natural gas portion of your utility bill 25 – 35% over last winter (Nov. – Mar.) for the same usage.
