The price rollercoaster for natural gas continues. Henry Hub natural gas futures for March climbed 75 cents on Wednesday to close at US$5.501/MMBtu, up US$1.224/MMBtu from a week earlier, before reversing to fall over 60 cents today. Henry Hub prompt-month futures are trading at US$4.86/MMBtu as of 12:15pm EDT Thursday afternoon. Market analysts are closely watching winter storms heading to Texas, which could cause further well freeze-offs and reduced production. US dry gas production is currently estimated at 89.6 Bcf/d, down 5.2 Bcf/d from January 31st, and is expected to start recovering over the weekend. The EIA estimated an overall withdrawal of 268 Bcf for the week ending January 28th, with working gas storage at 2,323 Bcf. This is the third consecutive week of storage pulls above 200 Bcf. The withdrawal was lower than market expectations, averaging 280 Bcf, while exceeding the five-year average of 150 Bcf. Storage levels are now 14.5% below year-ago levels and, relative to the five-year average, 5.8% less. For this week, ending tomorrow, the market expects a withdrawal of 280 Bcf, as increased heating demand and ongoing production interruptions tighten the supply/demand balance.
In Canada, the January AECO 5a spot price averaged C$4.17/GJ, up 8.8% from December’s price of C$3.83/GJ. The Dawn index averaged C$4.89/GJ, up 6.4% from December’s average of C$4.60/GJ. Spot prices elevated as cooler-than-normal weather increased heating demand. Prompt-month futures for AECO are trading at C$4.93/GJ, while Dawn is trading at C$6.91/GJ. Prices have risen, with week-over-week increases of $0.82/GJ and $1.59/GJ at AECO and Dawn, respectively. Point Logic reports Canadian natural gas storage for the week ending January 28th was sitting at 452 Bcf, after a withdrawal of 22 Bcf. This withdrawal decreases storage inventories to 10.8% below the 5-year average and 16.8% below storage levels last year at this time. Canadian storage is 52% full, with Eastern storage levels now at 62% of capacity and Western storage 48% full. A withdrawal of 16 Bcf is expected for the week ending tomorrow.
Dozens of relinquished US LNG cargoes originally secured by China are now Europe-bound while Europe’s energy crisis, fueled by intentional undersupply from Russia, continues. Since it takes much less time to ship LNG from the Gulf of Mexico to Europe than it does to ship it all the way across the Pacific, the US will likely get a few extra shipments of LNG to Europe while Russian-Ukraine tensions escalate, and looming sanctions on Russia and Nord Stream 2 are used as negotiating pawns. Germany, the EU’s largest economy, supports the Ukraine economically more than any other country. The German government strongly feels the situation should be settled diplomatically, without military force. Olaf Scholz, Chancellor of Germany will travel to the US February 7th to meet with Biden about it, after which he will pay a diplomatic visit to Putin in Moscow. As Russia has been threatened with severe financial sanctions for years now, it’s believed they are prepared to weather any that may be imposed. Even if Germany maxes out its LNG import capacity to combat the pipeline undersupply, it would only meet about 15% of its demand. As such, Europe will likely be looking at higher natural gas prices well into 2023, if not beyond.
– Karyn Morrison, Energy Advisor / Grace Wilton, Senior Energy Advisor
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