Widespread heat in the US has boosted power demand to record levels, pushing Henry Hub natural gas futures to three-week highs, trading at US$6.77/MMBtu as of 12:30pm EDT Thursday afternoon. The front-month contract is up over 75% since the start of 2022, alongside strong demand for US liquified natural gas (LNG) exports. Gas prices in Europe are trading around US$54/MMBtu, a four-month high, while gas prices in Asia are currently US$39/MMBtu. The US Energy Information Administration (EIA) estimates US LNG exports averaged 11.2 Bcf/d in the first quarter of 2022, up from 9.5 Bcf/d during the same period in 2021. The 2022 LNG export forecast has been revised to average 10.9 Bcf/d, resulting from the June 8th explosion at the Freeport LNG export facility in Texas, forcing an additional ~2.0 Bcf/d to remain in the US. The EIA forecast assumes the Freeport facility will return to near full operations in January 2023, with LNG exports averaging 12.7 Bcf/d in 2023.
The EIA estimated working gas storage was 2,369 Bcf for the week ending July 8th, following an overall injection of 58 Bcf. The build was in line with expectations averaging 57 Bcf, and higher than the five-year average injection of 55 Bcf. Storage levels are 9.6% below year-ago levels and, relative to the five-year average, 11.9% less. The EIA forecasts inventories will end the injection season (end of October) 6% less than the five-year average and down 5% from October 2021. Supply concerns remain as hot summer weather will keep natural gas demand for power generation high with limited opportunities for gas-to-coal switching.
High US coal prices and low coal inventories at US power plant facilities have also been playing a significant role in upward-trending natural gas prices over the past twelve months. Despite its declining market share in power generation, coal still provided 22% of US power generation in 2021 and will provide similar levels in 2022. In the past twelve years, power plant coal inventories have fallen to 70% or lower vs the five-year average level on only three separate, and relatively brief, occasions; in each instance, notable natural gas price spikes occurred. The most recent instance of sub 70% inventory levels was from August 2021 to April 2022 when Henry Hub spot prices averaged US$4.84/MMBtu. Coal inventories are expected to normalize (relative to the five-year average) after the summer.
In Canada, prompt-month futures for AECO are trading at C$4.55/GJ, while Dawn is trading at C$7.91/GJ. Prices have risen, with week-over-week increases of $0.32/GJ and $1.22/GJ at AECO and Dawn, respectively. Point Logic reports Canadian natural gas storage for the week ending July 8th was sitting at 375 Bcf, after an overall injection of 26 Bcf. Eastern Canadian storage had an injection of 11 Bcf, and Western Canadian storage had an injection of 14 Bcf. The storage deficit is continuing to narrow, now 24% below the 5-year average and 20% below storage levels last year at this time. Canadian storage is 43% full, with Eastern storage levels now at 58% of capacity and Western storage 37% full. An injection of 17 Bcf is expected for the week ending tomorrow.
– Karyn Morrison, Energy Advisor / Josh Lowe, Senior Energy Advisor
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