Prompt month has rolled over to May and Henry Hub natural gas futures are trading at US$2.64/MMBtu as of 1:30pm EDT Thursday afternoon, up $0.03/MMBtu from yesterday’s close of US$2.608/MMBtu. As heating season winds down, total US demand fell 7 Bcf/d week-over-week, driven by a drop in residential and commercial demand. Market analysts will be closely watching the supply/demand imbalance, as liquefied natural gas exports remain strong and production levels have recovered from the February cold snap. The EIA estimated working gas storage was 1,764 Bcf for the week ending March 26th, 2021, following the first injection of the season at 14 Bcf. This report is on the low end of market expectations of 14-21 Bcf, with prices retreating from a high of US$2.663MMBtu earlier today. A 4 Bcf revision was also issued for the week ending March 19th, resulting in a 32 Bcf withdrawal last week, rather than 36 Bcf. Storage levels are now 11.3% below year-ago levels and, relative to the 5-year average, 2% less.
In Canada, the AECO 5A index settled at an average price of C$2.58/GJ in March, down 31.6% from February, while the Dawn Next Day index settled at C$2.96/GJ, down 36.6% from February’s average. As you recall, spot market prices spiked in February due to extreme winter weather impacts to demand, storage and production. Prompt-month futures for AECO are trading at C$2.46/GJ, while Dawn is trading at C$2.96/GJ. Canadian natural gas storage for the week ending March 26th, 2021 was sitting at 331 Bcf, after an overall withdrawal of 6 Bcf. This withdrawal decreases storage inventories to 51 Bcf below the 5-year average, while remaining 4 Bcf above storage levels last year at this time.
This summer, we are expecting spot price levels to be about 26-37% higher than last year for several reasons, one of which is the fact that less natural gas will make it to storage due to international LNG export demand. Another is that the cost of production is expected to increase somewhat, as the US’ inventory of DUCs (drilled but uncompleted wells) declines. However, balancing out those upward drivers are the fact that the US is expecting a 6% year-over-year decrease in power burn which results in about a 4% decreased demand in that sector. Power burn declines are being fueled (pun intended) by a significant year-over-year increase in the cost of natural gas and a whopping net 33.9 GW increase to electricity generation capacity being mostly from solar and wind.
– Karyn Morrison, Energy Advisor / Grace Wilton, Senior Energy Advisor
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