Natural gas futures for September have retreated, trading at US$3.93 MMBtu as of 1:15pm EDT, down more than 12 cents from yesterday’s close of US$4.059 MMBtu. Cooler weather forecasts in the near-term reducing power burn demand, along with a storage injection of 49 Bcf which was in line with market expectations, pushed prices below US$4 MMBtu. The EIA estimated working gas storage was 2,776 Bcf for the week ending August 6tth, with storage levels now 16.5% below year-ago levels and, relative to the five-year average, 6% less. The EIA is forecasting natural gas inventories will end the 2021 injection season (end of October) 4% below the five-year average. As reported in the EIA August Short-Term Energy Outlook report, above-average withdrawals from storage in the 2020-2021 winter heating season and below-average injections this summer have contribution to the tight supply, along with high natural gas exports and relatively flat dry natural gas production. The EIA has projected U.S. dry natural gas production will average 92.9 Bcf/d during the second half of 2021, up from 91.4 Bcf/d in the first half of the year, and then increase to 94.9 Bcf/d in 2022, driven by higher natural gas and crude oil prices.
The rally on global LNG prices (US$17-$18/MMBtu for winter) has also contributed to elevated natural gas prices here in North America. It looks like there may be some relief around the distant bend. For the last three months or so, Russia has been suspending about 3 Bcf per day of natural gas to Europe on its Nord Stream pipeline which runs under the Baltic Sea from Russia to Germany, while the final Nord Stream 2 agreement gets hammered out in such a way that keeps the peace in Ukraine and doesn’t hold the European energy market hostage. The US is sending appointee and former lobbyist, Amos Hochstein, to help reduce risks to Eastern European energy security and hopefully get the job done. Hmmm. Additionally, Chevron’s LNG liquefaction facility in Gorgon, Western Australia has now resumed exporting 2 Bcf/d, now that maintenance efforts that began last May 2020 are over and the plant is back online.
In Canada, the August month-to-date AECO 5A spot rate is C$3.07/GJ, down C$0.67/GJ from July’s AECO 5A spot price of C$3.74/GJ, while the month-to-date Dawn Next Day weighted average index rate is currently C$4.60/GJ, up $0.35/GJ from July’s average of C$4.25/GJ. Daily spot prices at AECO have declined sharply over the past 3 days, falling below C$2/GJ as maintenance to Nova Gas Transmission Pipeline’s East Gate has introduced volatility and price weakness. It is expected AECO 5A prices will continue to fluctuate from day to day over the month as the system flips between unconstrained and constrained. Prompt-month futures for AECO are trading at C$3.30/GJ, while Dawn is trading at C$4.60/GJ. Prices saw week-over-week decreases of $0.11/GJ and $0.07/GJ at AECO and Dawn, respectively. Canadian natural gas storage for the week ending August 6th was sitting at 506 Bcf, after an overall injection of 13 Bcf. This injection increases storage inventories to 13.9% below the 5-year average and 20.6% below storage levels last year at this time. Eastern storage levels are now at 68% capacity and Western storage is 55% full.
– Karyn Morrison, Energy Advisor / Grace Wilton, Senior Energy Advisor
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