Natural Gas Market Indicators – November 28, 2023

Natural Gas Market Summary

EIA anticipates North American LNG export capacity to double through 2027. New projects are expected to come online in Canada, Mexico, and the U.S., adding 12.9 Bcf in combined export capacity. As LNG export capacity is expected to increase, U.S. dry gas production remains near record territory while the percentage of active natural gas-directed rigs remains consistent year-over-year. The consistent and higher production levels, among other factors, have contributed to prompt-month future prices dropping below $3.00 per MMBtu.

Reported Prices

Prompt-month futures have once again dropped below $3.00 per MMBtu as of November 28, with December futures pricing below $2.80, according to data from CME. Futures remain below $3.00 per MMBtu through June of 2024, rising only slightly above the $3.00 threshold in July. As of this morning, spot prices vary across the country, with the highest price of $48.90 per MMBTU seen out of New England.

Weather

Colder temperatures have descended from Canada and have settled over the Midwest and the East Coast. NOAA anticipates the cooler temperatures persisting through Thursday of this week before milder temperatures bring in the weekend. The week ending November 25 saw temperatures roughly 13 percent warmer than last year, as measured by heating degree days (HDD). Across the pond, the European weather outlook shows decidedly colder temperatures. This is notable given the potential strains on its natural gas system as heating requirements drive natural gas demand. Europe is starting its winter with record levels of natural gas in storage.

Demand

Total natural gas consumption increased week-over-week from 77.1 to 83.2 Bcf per day for the week ending November 15, according to data from the Energy Information Administration. A 4.8 Bcf per day increase in demand from the residential and commercial sectors was the primary driver as temperatures dropped. Both the power generation and industrial sectors also saw marginal increases.

Production

U.S. dry gas production continues to push into new highs, reaching above 106 Bcf per day at times this month, according to S&P Global Commodity Insights. Looking at the weekly data, the EIA Natural Gas Weekly update reports dry gas production has increased 0.6 Bcf per day from 104.7 to 105.3 Bcf per day for the report week ending November 15. The November 13 release of the EIA’s Drilling Productivity Report forecasts increased production across all natural gas-producing regions. The top three producing regions in December are forecasted to be the Appalachia, Haynesville, and Eagle Ford.

Pipeline Imports and Exports

S&P Global Commodity Insights reports an average of 5.2 Bcf per day in pipeline imports from Canada for the week ending November 27. Daily imports from Canada thus far for November are averaging 5.31 Bcf per day, only 0.07 Bcf higher than the 5.24 Bcf per day import levels one year ago. Alternatively, daily exports to Mexico averaged 6.1 Bcf per day for the same report week.

LNG Markets

According to the EIA’s Natural Gas Weekly Update, natural gas deliveries to U.S. LNG terminals rose 0.3 Bcf per day week-over-week to 14.2 Bcf per day for the week ending November 15. Prompt-month futures for LNG cargoes out of JKM decreased $0.29 week-over-week from $17.46 to $17.17, while futures reported out of TTF rose $0.33 to an average of $14.97 per MMBtu.

Looking forward, the EIA’s November 13 release of Today in Energy anticipates North American LNG export capacity is likely to double through 2027. This increase would take export capacity from 11.4 Bcf today to 24.3 Bcf per day as Mexico and Canada place their first LNG export terminals into service and the U.S. adds to its existing LNG capacity. Of the anticipated additional 12.9 Bcf per day in North American exports, the EIA is projecting 1.1 Bcf per day growth in export capacity by Mexico, 2.1 Bcf per day from Canada, and 9.7 Bcf per day from the U.S. The increase in development across North America is the result of a total of ten new projects across the three countries: three in Mexico, two in Canada, and five in the U.S.

Working Gas in Underground Storage

We have seen the first withdrawals from storage for the winter heating season. The EIA reports a seven Bcf withdrawal for the week ending November 17. This puts working gas in underground storage at 3,826 Bcf, which is 7 percent above last year and the five-year average.

Rig Count

Baker Hughes reports that the total rig count in the U.S. increased week-over-week with the addition of three gas-directed rigs and one miscellaneous rig. Of the 622 operational rigs in the U.S., 500 are oil-directed, 117 are gas-directed, and five are miscellaneous. Although active rigs have declined 162 rigs year-over-year, dropping from 784 this time last year to this year’s 622 rigs, the overall composition of rigs has changed only marginally. One year ago, 80 percent of active rigs were oil-commissioned rigs, and roughly 20 percent were gas-directed rigs. The percentage of oil-directed rigs remained unchanged year-over-year, while the percentage of gas-directed rigs experienced only a one percent decline from twenty percent of active rigs this time last year to nineteen percent of active rigs the report week ending November 22.

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