Natural Gas Market Indicators – June 15, 2023
Market Summary
- According to NOAA, El Niño conditions have developed in the Pacific. El Niño is likely to suppress some of the Atlantic basin hurricane activity this summer.
- The EIA’s STEO predicts that natural gas will remain the primary source of electric generation this summer, accounting for 41 percent of all domestic generation.
- The latest storage report indicates that early into the storage season total working natural gas stocks are 16 percent above the five-year average and 28 percent above last year’s stocks.
Weather
On June 8, the NOAA Climate Prediction Center announced that El Niño conditions have developed as the atmosphere begins to react to higher-than-normal surface temperatures across the Pacific Ocean. El Niño conditions are expected to last into the winter, and NOAA estimates a 56 percent chance of a strong El Niño event and an 84 percent chance of a moderate one. The development of El Niño carries important implications for weather patterns in the US. According to the National Weather Service, winters during an El Niño tend to be warmer across the north, wetter in the South, and drier from the Mid-West to the mid-Atlantic. Additionally, the strong westerly winds that develop during El Niño help suppress Hurricane activity in the Atlantic. As a result, all major hurricane season predictions call for a calmer Atlantic hurricane season this year. The first two weeks of the Atlantic hurricane season have only seen one named storm develop in Tropical Storm Arlene. NOAA’s 16-day forecast anticipates cooler than normal temperatures on the East Coast and mild temperatures in the mid-West and West headed into the weekend. However, NOAA anticipates that warmer-than-normal temperatures will settle throughout the Midwest over the third week of June. For the week ending June 10, temperatures in the U.S. were roughly 29 percent cooler than last year and 27 percent cooler than normal. For the month of May, the weather in the U.S. was roughly 26 percent cooler than last year and seven percent cooler than normal.
Demand
The EIA’s Natural Gas Weekly Update reports a 4.8 Bcf per day increase in demand from 62.7 to 67.5 Bcf per day for the week ending June 7, the primary driver being the 5.4 Bcf per day increase in demand from the power generation sector for a total of 36.2 Bcf per day. The June 2023 Short-Term Energy Outlook predicts that natural gas will remain the largest source of electricity generation in 2023, accounting for 41 percent of total generation this summer, up from 39 percent in 2022. At the same time, total emissions from electric generation are expected to decline by 3.4 percent this summer. Although total domestic demand for natural gas rose, consumption in the industrial sector remained flat while demand in the residential and commercial sectors fell only marginally by 0.7 Bcf per day.
Production
The EIA’s Short-Term Energy Outlook decreased its natural gas production estimates for the second half of 2023 from 104 Bcf per day in the April and March releases, to 103 Bcf per day for the June update. The downward production adjustment reflects the decrease in natural gas-directed drilling which may be due in part to the low spot prices seen out of Henry Hub as compared to the elevated prices one year ago. The EIA’s Natural Gas Weekly Update reports a 0.7 Bcf per day decrease in dry gas production week-over-week from 101.9 to 101.2 Bcf per day for the report week ending June 7. The newest release of the Drilling Productivity Report from the EIA forecasts yet another increase in natural gas production out of the Permian, Haynesville, and Appalachia for the month of July and a slight decrease in production in the Anadarko and Eagle Ford regions.
Pipeline Imports and Exports
Imports from Canada rebounded this week from 4.2 Bcf per day the previous week to 5 Bcf per day for the report week ending June 7. Reuters reports Canadian export facilities are recovering following the easing of the wildfires that have affected Canada since late April. Exports to Mexico remained flat week-over-week with a steady daily average of 6.2 Bcf.
LNG Markets
Average natural gas deliveries to U.S. LNG export terminals decreased by 1.4 Bcf per day week-over-week from 13.3 to 11.9 Bcf per day for the report week ending June 7. LNG terminals in South Louisiana saw the bulk of the declining deliveries, partly due to the scheduled maintenance on the Gillis compressor station on the Creole Trail Pipeline at the Sabine Pass from June 5th through the 9th. For the first time since the heating season, weekly average natural gas deliveries to LNG export terminals fell below 12 Bcf per day.
Working Gas in Underground Storage
U.S. working natural gas in underground storage totaled 2,550 Bcf for the week ending June 2, a 104 Bcf increase from the week prior. This injection pushed total working natural gas stocks 16 percent above the five-year average and 28 percent above last year’s stocks. The average rate of injections into storage this season is 8 percent higher than the five-year average.
Rig Count
Baker Hughes reports the U.S. rig count decreased by a net total of 1 to a total of 695 rigs for the week ending June 9. Two natural gas-directed rigs closed while one oil-directed rig came online. The EIA’s Natural Gas Weekly Update reports the total rig count has fallen below 700 rigs for the first time since April 29, 2022.
Reported Prices
The twelve-month strip for natural gas prompt-month futures remains below $4.00 per MMBtu through May of 2024, according to EIA’s Natural Gas Storage Dashboard. The EIA also reports international futures prices decreased week-over-week in both the JKM in Asia and the TTF in the Netherlands. Prompt-month futures fell $0.06 to a weekly average of $9.25 per MMBtu at JKM, while futures fell $0.03 to a weekly average of $7.95 per MMBtu at the TTF in the Netherlands. As of June 15, prices out of Henry Hub were trading below $2.60 per MMBtu.
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