Natural Gas Market Indicators – June 2, 2023

Market Summary

• The National Hurricane Center forecasts a “near-normal 2023 Atlantic hurricane season.”
• The EIA’s Drilling Productivity Report anticipates a new production record out of the Permian Basin for June.
• LNG export forecasting to 2050 shows minimal impact on the average natural gas spot price, even with the most aggressive LNG export case.

Weather

NOAA’s 16-day forecast anticipates warmer temperatures in the Northeast while cooler temperatures settle over the Southwest headed into the weekend. The 16-day outlook forecasts warmer-than-normal temperatures throughout the Northwest for the first full week of June, while cooler temperatures descend into East Coast before pushing West in the second week of June. For the week ending May 27, temperatures in the U.S. were roughly 37 percent cooler than last year and 32 percent cooler than the 30-year normal. The National Hurricane Center, a division of NOAA, held its Atlantic Hurricane Season Outlook Briefing on May 25, announcing a “near-normal 2023 Atlantic hurricane season.” Hurricane season spans from June 1 – November 30, and NOAA forecasts a 40 percent chance of a near-normal season with a range of 12 to 17 total named storms. Of the 12 to 17 potential named storms, 5 to 9 of the storms could become hurricanes, with 1 to 4 of these becoming major hurricanes. NOAA anticipates a less active season than in recent years due to the high potential for an El Nino to develop this summer, which can suppress Atlantic hurricane activity. Although an El Nino event could lessen the intensity of the 2023 hurricane season, favorable conditions in the tropical Atlantic Basin could produce warmer-than-normal sea surface temperatures, which would serve as energy to fuel developing hurricanes. As mentioned in a previous issue of NGMI, NOAA has updated its forecast for tropical cyclones from a five-day outlook to a seven-day outlook. This timeline expansion is in addition to a 20% increase in computing capacity which will enable NOAA to run more complex forecast models and “provide emergency managers and communities with more time to prepare for storms” according to NOAA Administrator Rick Spinrad, Ph.D.

Demand

The EIA Natural Gas Weekly Update reports a 1.2 Bcf per day decrease in demand from 64.7 to 63.5 Bcf per day for the week ending May 24, primarily driven by a 1.9 Bcf per day decrease in the power generation sector. Although overall demand fell, it was up in the residential and commercial sectors by 0.5 Bcf per day from 10.6 to 11.1 Bcf per day in the residential and commercial sectors.

Production

The EIA reports a week-over-week increase of 0.3 Bcf per day in dry gas production in the Natural Gas Weekly Update. Reuters reported that the EIA’s Drilling Productivity Report anticipates total natural gas production in the “big shale basins will increase by almost 0.3 billion cubic feet per day (bcfd) to a record of 97.2 Bcfd in June.” The Drilling Productivity Report forecasts production out of the Appalachia to rise to 35.3 Bcf per day in June of this year, outpacing the previous record of 36 Bcf per day in December of 2021. The Report also anticipates a 22.6 Bcf per day output for June in the Permian basin, the highest production on record for the region.

Pipeline Imports and Exports

Imports from Canada decreased marginally week-over-week from 4.3 Bcf per day to 4.1 Bcf per day for the report week ending May 24, as reported by the Energy Information Administration. The EIA also reported a 0.1 Bcf per day increase in exports to Mexico for the same week, from 5.6 Bcf per day to 5.7 Bcf per day.

LNG Markets

Average natural gas deliveries to U.S. LNG export terminals decreased by 0.1 Bcf per day week-over-week to an average of 12.7 Bcf per day for the report week ending May 24. The EIA’s May 24 Today in Energy discusses the price impact of LNG exports based on the EIA Issues in Focus: Effects of Liquefied Natural Gas Exports on the U.S. Natural Gas Market, a supplemental document to the EIA Annual Energy Outlook (AEO). The Issues in Focus article presents three additional side cases that model U.S. LNG export volumes ranging from 12.6 to 48.2 Bcf per day by 2050. Across the projections, the natural gas spot price at the Henry Hub in 2050 ranges from $3.30 per MMBtu to $4.30 in the scenario with the highest level of LNG exports. The most aggressive LNG exports scenario (48.2 Bcf per day) shows a price impact of $1.00 per MMBtu relative to the Reference Case.

Working Gas in Underground Storage

U.S. working gas in underground storage totaled 2,336 Bcf for the report week ending May 19, a 96 Bcf increase from the week prior. The most recent injection reported is 8 Bcf higher year-over-year, culminating in working gas stocks 17 percent higher than the five-year average and 29 percent higher than last year.

Rig Count

The U.S. rig count decreased by nine to 711 rigs as of May 26. Five of the decommissioned rigs were oil-directed, and four were gas-directed. As mentioned in the May 15 issue of NGMI, the third largest weekly percentage drop in rigs on record occurred during the report week of May 12.

Reported Prices

The twelve-month strip for natural gas futures prices remain below $4.00 per MMBtu through April 2024, according to EIA Natural Gas Storage Dashboard, well below the roughly $5.50 per MMBtu prices one year ago. The EIA also reports international futures prices have continued to decrease. Prompt-month futures out of JKM for LNG cargoes fell $0.90 to a weekly average of $9.73 per MMBtu while the TTF fell $1.18 to a weekly average of $9.27 per MMBtu for the week ending May 24. As of June 2, prices out of Henry Hub were trading below $2.25 per MMBtu.

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