Natural Gas Market Indicators – May 15, 2023

Market Summary

• Natural gas consumed for power generation during the winter heating season hit a new record of 30.6 Bcf per day on average.
• The EIA forecasts natural gas consumption for power generation to average 38 Bcf per day in the summer of 2023.  
• Baker Hughes reports sixteen natural gas rigs were decommissioned for the report week ending May 12 dropping natural gas rigs to 141, the third largest week-over-week percentage drop on record.

Weather

The East and West Coasts of the U.S. are currently experiencing warmer than normal temperatures before a cold front moves through the Mid-West into the East Coast in the early part of this week. NOAA’s 16-day forecast anticipates warmer temperatures in the West and cooler temperatures in the East for the remainder of the month before milder temperatures settle across the country for the beginning of June. NOAA recently announced updates to their long-range forecasting that will increase from five to seven days of lead time ahead of major storms. The hurricane center also updated its tropical weather outlook from the chance of a tropical storm formation at two days and five days, to two days and seven days. Hurricane Center representative Robbie Berg states the “reliability of that seven-day forecast is just as good as our five-day forecast has been.”

Demand

The Energy Information Administration reported that an average of 30.6 Bcf per day of natural gas was consumed for power generation during the most recent winter heating season, a new record. Demand for natural gas for generation during the heating season has increased consistently year after year as overall electric demand grows and coal power plants are decommissioned. The most recent release of the EIA’s Natural Gas Weekly Update reports demand fell 5.1 Bcf per day from 70.5 to 65.4 Bcf per day for the report week ending May 10. The 31.8% drop in demand was primarily driven by the 6.5 Bcf per day decrease in consumption in both the residential and commercial sectors as temperatures have remained moderate across the US. In contrast, natural gas demand for power generation increased by 2.2 Bcf per day week-over-week. The May 9 edition of the Short-Term Energy Outlook,  expects an average demand of 38 Bcf per day for power generation this summer. Such demand would constitute a slight decrease from the record-setting average daily demand from summer 2022. The EIA recently increased its projections for natural gas consumption for power generation by 2% for 2023 and 3% for 2024. The North American Electric Reliability Corp (NERC) releases its 2023 Summer Reliability Assessment on Wednesday, May 17, of this week. Prior to the assessment publication, NERC released a statement that “if summer temperatures spike and become more widespread, the U.S. West, Midwest, Texas, and Southeast, New England and Ontario (in Canada) may experience resource shortfalls” as reported by Reuters.

Production

The EIA reports a week-over-week decrease of 1 Bcf per day in dry gas production in the Natural Gas Weekly Update.  Notwithstanding the small drop, production is up an average of 3.9 Bcf per day from 96.9 Bcf per day one year ago. The May edition of the Short-Term Energy Outlook forecasts natural gas production in the Gulf of Mexico will average 2.3 Bcf per day in 2023 and decrease to 2.1 Bcf per day in 2024.  

Pipeline Imports and Exports

Imports from Canada decreased slightly week-over-week from 5.1 Bcf per day to 4.8 Bcf per day for the report week ending May 10, as reported by the Energy Information Administration. The EIA also reported an increase of 0.4 Bcf per day in exports for the same week, from 5.4 Bcf per day to 5.8 Bcf per day.

LNG Markets

Average natural gas deliveries to U.S. LNG export terminals decreased by 0.6 Bcf per day week-over-week to an average of 12.9 Bcf per day for the report week ending May 10. The EIA notes this is the third consecutive week of declining natural gas deliveries to export terminals. This trend is unsurprising as the Administration notes demand for feedgas at U.S. export terminals generally declines this time of year when exports are seasonally lower.

Working Gas in Underground Storage

U.S. working gas in underground storage totaled 2,141 Bcf for the report week ending May 5, a 78 Bcf increase from the week prior. The most recent injection report is 9 Bcf lower than the five-year average and 2 bcf higher than the same time last year. Although the 78 Bcf injection is lower than the five-year average, total stocks remain 18% higher than the five-year average and 31% higher than in 2022.

Rig Count

The U.S. rig count decreased by seventeen rigs for a net total of 731 rigs as of May 12. Two of the decommissioned rigs were oil-directed, and sixteen were gas-directed. The decrease in natural gas rigs can be seen as a reaction to slacking demand influenced by the mild temperatures seen throughout the winter. According to Baker Hughes, this 10.2% drop in rigs is the third largest weekly percentage drop on record, proceeded only by the 10.6% drop in February 1993 and the 14% drop in February 2016.

Reported Prices

The EIA Natural Gas Storage Dashboard continues to forecast natural gas prices to remain below $4.00 per MMBtu through April 2024. The EIA also reports international future prices have continued to decrease. LNG cargoes in East Asia fell $0.26 to a weekly average of $11.28 per MMBtu while deliveries at the TTF fell $0.71 to a weekly average of $11.61 per MMBtu for the week ending May 10. Year-over-year prices decreased substantially, falling by $12.26 and $18.98 in East Asia and the TTF respectively. As of May 15, prices out of Henry Hub were trading below $2.40 per MMBtu.

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