The escalating Russia and Ukraine conflict continues to heighten volatility for natural gas. Henry Hub natural gas futures for March spiked to a high of US$4.94/MMBtu earlier today, up over 30 cents from Wednesday’s close of US$4.623/MMBtu, before steadying near US$4.55/MMBtu as the 2:30pm EDT close approached. Despite the geopolitical tensions, fundamentally, the North American natural gas market is well supplied. While temporary production freeze-offs occurred twice this month, helping to fuel the recent upward price movements, the US natural gas market is showing clear signs that increased production is on its way. US natural gas rig counts are trending up at an accelerated pace this month, now up 25% from counts at the start of this winter. Expectations of 97-98 Bcf/d by the start of the fourth quarter of 2022, if not sooner, now have the early signal support of this expanded rig count. Upside risks for North American natural gas are fairly muted from a logistical perspective, as natural gas demand from the LNG export sector can only increase approximately 1 Bcf/d from current deliveries. Natural gas markets have struggled to price in the risk of the Russia-Ukraine conflict since the end of 2021; that said, market analysts believe the $4.50+ prices on US natural gas will not last and prices are expected to average below US$4/MMBtu during the summer.
The EIA estimated working gas storage was 1,782 Bcf for the week ending February 18th, following an overall withdrawal of 129 Bcf. The pull was slightly lower than market expectations, averaging 133 Bcf, and below the five-year average withdrawal of 166 Bcf. Storage levels are now 10.5% below year-ago levels and, relative to the five-year average, 10.7% less.
In Canada, the February month-to-date AECO 5a spot rate is C$4.44/GJ, while the month-to-date Dawn Next Day weighted average index rate is currently C$5.39/GJ. February spot prices have increased 17.6% at AECO and 15.5% at Dawn compared to last February. Prompt-month futures for AECO are trading at C$4.55/GJ, while Dawn is trading at C$5.37/GJ. Prices have declined at Dawn, with a week-over-week decreases of $0.37/GJ, while AECO remains flat compared to last week. Point Logic reports Canadian natural gas storage for the week ending February 18th was sitting at 331 Bcf, after a withdrawal of 28 Bcf. This withdrawal decreases storage inventories to 22.3% below the 5-year average and 22.7% below storage levels last year at this time. Canadian storage is 38% full, with Eastern storage levels now at 34% of capacity and Western storage 41% full. A withdrawal of 32 Bcf is expected for the week ending tomorrow.
– Karyn Morrison, Energy Advisor / Josh Lowe, Senior Energy Advisor
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