Henry Hub natural gas futures for January are trading at US$4.10/MMBtu as of 1:00pm EDT Thursday afternoon, plunging over US$1/MMBtu this week from last Friday’s close of US$5.477/MMBtu. Forward prices have dropped to pre–Hurricane Ida levels, not seen since late August 2021. Warmer than usual weather forecasts for December have continued to put downward pressure on prices this week. US liquefied natural gas (LNG) feed gas flows are at 10.7 bcf/d, falling below 11 bcf/d, and US dry gas production is estimated at 95.9 bcf/d, down from the 2021 high of 96.5 Bcf/d last week. The EIA estimated working gas storage was 3,564 Bcf for the week ending November 26th, following an overall withdrawal of 59 Bcf. The withdrawal was in line with market expectations ranging from 57-60 Bcf, but higher than the five-year historical withdrawal of 31 Bcf during this same period. Storage levels are now 9.5% below year-ago levels and, relative to the five-year average, 2.4% less.
The gas markets remain vulnerable to prolonged winter price spikes. Even with a mild first half of December forecasted for the Lower 48, the second half of 2021 prices were influenced by low coal stocks at US coal generator plants and Europe’s continued supply crunch. These geopolitical overtones are ramping up, and could very well last throughout the winter. On the US power generation front, there is relief coming as more renewables come online, but Q1 2022 still looks to be vulnerable to high power generation demand despite high raw fuel prices. US natural gas production surged more than the majority of analyst expectations to start the month of November, however, we suspect that it was due to an overlap in production activities stemming from tapping newly drilled wells and continuing to tap previously drilled but uncompleted wells (the latter having an inventory level that has not been this low since 2014). Rig counts for natural gas production need to continue to grow. Over the past 12 months, US natural gas demand (including demand from LNG exporting plants) averaged 98.2 Bcf/day. In 2022, US demand is expected to average near 101 Bcf/d, compared to 95.2 Bcf/d in 2019. The average North American natural gas rig count over the past 3 months is 165 rigs, which is 10% below the same period in 2019. Rig counts are still low relative to near-term production requirements.
In Canada, prompt-month futures for AECO are trading at C$3.56/GJ, while Dawn is trading at C$5.12/GJ. Prices have declined, with week-over-week decreases of $1.02/GJ and $0.88/GJ at AECO and Dawn, respectively. Point Logic reports Canadian natural gas storage for the week ending November 26th was sitting at 669 Bcf, after an overall withdrawal of 3 Bcf. This withdrawal decreases storage inventories to 4.6% below the 5-year average and 13.7% below storage levels last year at this time. Canadian storage is 77% full, with Eastern storage levels now at 94% capacity and Western storage 71% full. A withdrawal of 14 Bcf is expected for the week ending tomorrow.
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