Natural Gas Market Indicators – April 14, 2023

Market Summary

One year ago, futures prices at Henry began to climb above $5 per MMBtu to eventually reach above $9 for a short period later by August. Some observers wondered over the last two years whether the “era of cheap gas” was at an end as prices reached higher levels that hadn’t been sustained for more than a decade. As of April 14, prompt month futures were trading at around $2.00 per MMBtu. The structural “tightness” in the market prevalent in 2022 as demand grew faster than supplies appears to have now inverted as the market responds to higher prices. Natural gas production today is 4 percent higher than one year ago. The EIA Short-Term Energy Outlook indicates that the U.S. is now supplying more natural gas than it demands, a trend expected to sustain through 2024. While demand materialized last winter—the highest-ever demand day was set on December 23, 2022- overall warmer-than-normal temperatures meant lower demand and below-average storage withdrawals. This considerable boost to the supply side of the equation is likely contributing to today’s pricing dynamics.

Weather

The western U.S. is currently experiencing cooler than average temperatures, while the eastern U.S. is experiencing warmer than average temperatures. NOAA’s 16-day forecast expects the cooler temperatures from the West to push East over the weekend. The winter heating season officially ended on March 31, so NGMI will begin reporting cooling degree days starting in May. Additionally, the Atlantic hurricane season will not begin until June 1. Still, the Department of Atmospheric Studies at Colorado State University has already released its first hurricane season forecast. CSU expects a slightly quieter than average season of thirteen named storms, six hurricanes, and two major hurricanes. However, CSU highlights the possibility of an El Niño developing in the summer/fall timeframe, potentially affecting surface water temperatures and increasing the uncertainty this hurricane season. Nonetheless, CSU states that the probability of a hurricane making landfall in the U.S. is comparable to previous years.

Demand

The Energy Information Administration reported an overall decrease in total U.S. consumption from 73.8 Bcf per day from the report week ending April 5 to 69.6 Bcf per day for the report week ending April 12. The 5.7 percent drop in consumption was largely driven by a week-over-week decrease in demand from the residential and commercial sectors of 3.9 Bcf per day, from 22.8 Bcf per day to 18.9 Bcf per day for the week ending April 12. This seventeen percent decrease in demand reflects the increasing temperatures across the U.S.

Production

The EIA’s Natural Gas Weekly Update reported dry gas production increased only marginally week-over-week from 100.6 Bcf per day to 100.7 Bcf per day for the week ending April 12. Although a minimal week-over-week increase, dry gas production is still up 4.7 Bcf per day year-over-year.

Pipeline Imports and Exports

Imports from Canada increased only slightly week-over-week from 4.3 Bcf per day to 4.5 Bcf per day for the report week ending April 12, as reported by the Energy Information Administration. The EIA also reports a slight decrease of 0.2 Bcf per day in exports to Mexico for the same week, from 5.2 Bcf per day to 5.0 Bcf per day.

LNG Markets

Europe has launched a new benchmark for LNG pricing to limit price spikes. Bloomberg reports that the European Union Agency for the Cooperating of Energy Regulators (ACER) launched a new page on Friday, March 31 that provides a daily benchmark price for LNG that can be voluntarily adopted as an alternative to the prices at the Title Transfer Facility, which saw massive price swings during 2022. The ACER LNG price assessment is based on a 10-day weighted average price of daily LNG spot transactions. As of April 14, the ACER LNG price was trading at a €7 discount relative to the TTF. The E.U. Energy regulator had planned to launch the daily assessments in January but could not due to insufficient spot price data in some regions. As a result, ACER adjusted the assessment calculation to include a 10-day average instead of the 5-day average it was using earlier in the year.

On April 2, Vitol announced that the first LNG cargo arrived at Finland’s new Inkoo terminal. The LNG originated at the Venture Global Calcasieu Pass facility in the United States. The new terminal was commissioned at the beginning of 2023 and is an additional step in Europe’s continued shift away from Russian energy to other sources, including Western supplies.

Feedgas flows for LNG export set a new record on April 11, reaching 14.6 Bcf per day based on preliminary estimates reported from S&P Global Commodity Insights.

Working Gas in Underground Storage

The Energy Information Administration released an update to the Short-Term Energy Outlook on April 11 with new forecasts for pricing, storage, and demand of natural gas, oil, and electricity. EIA reports the withdrawal season concluded with inventories nineteen percent higher than the five-year (2018-2022) average. As of the end of the withdrawal season, EIA forecasts that the 2023 injection season will end with inventories six percent higher than the five-year average at 3.8 trillion cubic feet. The EIA’s Natural Gas Weekly Update reports that the 2022-2023 withdrawal season saw the lowest net withdrawals from storage since the 2015-2016 withdrawal season due to increased production and relatively mild temperatures. Production increased roughly 5.2 Bcf per day as compared to the 2021-2022 withdrawal season, a 5.5 percent increase, while consumption increased only 1.6 Bcf per day over the same period. Of note, the increase in consumption was primarily driven by a 2.6 Bcf per day increase in demand for power generation. Although demand increased year-over-year, working natural gas stocks remain well above the five-year average across the country.

Rig Count

The U.S. rig count decreased by four rigs for a net total of 751 rigs as of April 6. Two of the decommissioned rigs were oil-directed, and two were gas-directed.

Reported Prices

The EIA’s Short-Term Energy Outlook anticipates Henry Hub spot prices to average roughly $2.65 per MMBtu in the second quarter of 2023, largely due to the high storage stocks. The sub $3.00 per MMBtu price is substantially lower than in the summer of 2022. EIA anticipates natural gas prices to average less than $3.00 per MMBtu for 2023, a more than 50% decrease from last year. Current market conditions are largely consistent with the EIA’s forecast as futures through November remain below $3.00. However, as of April 14, December futures at the Henry Hub were trading at around $3.40 per MMBtu. As of April 14, spot prices out of the Southwest were trading below $3.35; roughly 30 percent below the day prior. Prompt-month futures at Henry Hub were trading at around $2.00 per MMBtu.

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